LSREF III Wight Ltd v Millvalley Ltd

A contractual document is not corrected by construction merely because another interpretation better reflects the parties’ commercial purpose. Where the language is clear, the court must be satisfied that a clear drafting mistake occurred and that the required correction is clear.

Rectification is available where the parties had a continuing common intention, objectively manifested by an outward expression of accord, which the executed instrument fails to reflect through mistake. Negotiations and other evidence may be considered for rectification, although they are generally inadmissible on construction.

An entire agreement or non-reliance clause does not, without clear wording, exclude rectification of an instrument that itself contains the mistake.

Wight claimed an Early Termination Amount arising from an interest rate swap originally entered into by Millvalley and Anglo Irish Bank. The parties later executed a 2002 ISDA Master Agreement and Schedule containing additional termination events.

In 2012, part of the original swap was terminated and a reduced swap was documented by a long-form confirmation referring to a generic 1992 ISDA form. Millvalley relied on that wording to deny that the 2002 agreement governed the reduced swap.

The principal questions were whether the confirmation was governed by the 2002 or 1992 form, whether it should be rectified, whether estoppel arose, and whether the assigned early termination and costs were recoverable.

1. Construction. The Restructured Swap Confirmation unambiguously referred to a generic 1992 ISDA Master Agreement without a Schedule. Although that reference resulted from an administrative mistake and was commercially unlikely, the document did not contain a sufficiently clear mistake requiring correction by construction. The court therefore held that, as construed, the confirmation was not governed by the Millvalley 2002 ISDA Master Agreement.
2. Rectification. The requirements identified in Daventry District Council v Daventry & District Housing [2012] 1 WLR 1333 were satisfied. The parties had a continuing common intention that the 2002 agreement and Schedule should govern the swap; that intention was outwardly manifested in the facility documents, the earlier swap arrangements and the parties’ subsequent conduct; it continued when the confirmation was executed; and the long-form confirmation failed to reflect it because the bank’s systems had not recorded the existing master agreement.
3. The court ordered rectification by replacing the relevant long-form provision with wording making the confirmation subject to the 2002 ISDA Master Agreement and Schedule. The entire agreement, non-reliance and operational clauses did not prevent rectification. They addressed prior representations and the status of the document, whereas rectification corrected the instrument so that it reflected the parties’ true agreement.
4. The court did not decide the alternative estoppel-by-convention arguments because rectification resolved the dispute. IBRC’s termination was valid, and the Early Termination Amount was due and payable to Wight.
5. Under section 7(b) of the 2002 ISDA Master Agreement, the assignment of the Early Termination Amount carried associated rights under section 11. Wight could therefore recover the contractual costs indemnity. Costs were ordered on the indemnity basis, subject to any further submissions.

First-instance decision. The Restructured Swap Confirmation was rectified and judgment was given for the Early Termination Amount, costs and interest.