Tartsinis v Navona Management Company

Contractual interpretation is an objective exercise. The court determines the meaning of the language used in its factual and commercial context, without admitting pre-contractual negotiations or subsequent conduct for that purpose. Commercial common sense cannot override clear language or become an overriding construction criterion.

Rectification is a separate equitable remedy. It requires proof of a continuing common intention, an outward expression of accord, continuation of that intention when the instrument was executed, and a mistaken failure of the instrument to record it. The ordinary civil standard applies, although convincing evidence is needed to displace the evidential weight of the executed document.

The claimant sold shares in Newport Holdings Ltd to the defendant under a Share Transfer Agreement. The price was stated to be 40% of the net asset value of GO Carriers, whose principal assets were five ships. The Agreement provided for a provisional price and later adjustment following audited Delivery Date Accounts prepared under IFRS.

The parties disputed whether the fleet value of US$96.5m was provisional and subject to adjustment, or final. The defendant alternatively sought rectification on the basis that the parties had agreed orally that the fleet value was final. The central issues were the proper interpretation of the Agreement and whether its wording should be rectified.

1. Interpretation. The fleet value of US$96.5m was provisional. The Agreement contained no wording distinguishing it from the other elements of net asset value or making it final. The objective background included the transaction’s commercial genesis and the parties’ knowledge of the relevant accounting treatment, but not their negotiations or subjective intentions.
2. The Delivery Date Accounts were required to comply with IFRS. Under IAS 16 and IAS 36, the vessels could not simply be recorded at net book value where there were indications of impairment. The relevant accounting exercise required consideration of recoverable amount, including fair value less costs of sale and value in use.
3. Because Navona controlled GO Carriers, it had the contractual responsibility to procure the accounts. The Sellers alone could challenge figures in the accounts on the ground of error or non-compliance with IFRS. Navona could not rely on its own failure to procure compliant accounts, and failed in any event to prove that a compliant valuation would have produced a different figure.
4. Rectification. The court accepted the established requirements stated in Chartbrook v Persimmon Homes and Swainland Builders Ltd v Freehold Properties Ltd: a continuing common intention, outward expression of accord, continuation at execution, and mistake in recording it. The applicable standard was the balance of probabilities. The requirement for convincing proof reflected the evidential weight of the executed instrument, not a heightened civil standard.
5. The evidence established that the parties had expressly agreed, and maintained their agreement, that the fleet would be valued at US$96.5m for calculating the share price. The Agreement failed by mistake to record that the figure was final and not subject to adjustment. It was therefore rectified by adding that qualification to the definition of NAV.
6. As a result, US$178,681.70 was payable by Navona to the claimant.