FSHC Group Holdings Ltd v Barclays Bank Plc

Rectification for common mistake corrects the recording of a transaction; it does not relieve a party from a bad bargain or its commercial consequences. The court must determine objectively whether the parties had a common continuing intention on a particular matter when the document was executed, and whether the document failed to reflect it by mistake. An outward expression of accord is not a separate requirement, but the objective evidence must have crossed the line between the parties. The common intention need not have been expressed in precise words. The absence of discussion may itself support rectification where an important change to an existing arrangement would naturally have been discussed. Convincing proof is required to displace the written instrument, although the civil standard of proof remains applicable.

The claimant had been required under finance documents to provide security over a shareholder loan. The relevant security was not located, and the parties executed two accession deeds intended to document that security. By acceding to existing security assignments, however, the claimant also became subject to payment, guarantee and holding-company restrictions, including recourse to assets outside the original financing structure.

The claimant sought rectification for common mistake, contending that the deeds should do no more than fill the missing security gap. The defendant maintained that the claimant had deliberately chosen accession to the existing assignments and had assumed all their terms. The central issue was whether the parties shared a common intention, objectively assessed, which the deeds failed to record.

1. Claim allowed. The two accession deeds were ordered to be rectified because they did not reflect the parties’ common continuing intention.
2. Rectification is concerned with correcting the way a transaction has been recorded. It is not a jurisdiction to relieve a party from a bad bargain. The distinction between legal effect and consequences prevents rectification being used merely because a party regrets the commercial result.
3. The applicable requirements were that the parties had a common continuing intention concerning a particular matter; that the intention continued at execution; that it was established objectively by reference to what an objective observer would have understood; and that the document failed to reflect it by mistake. An outward expression of accord and common continuing intention are two aspects of the same requirement.
4. Communicated statements and conduct are the primary evidence. The court may also consider understandings which were so obvious that they went without saying. Subsequent conduct may cast light on intention at the time of execution, but cannot create a common intention which did not then exist.
5. Convincing proof was required because the written deeds were clear and prima facie evidence of the parties’ intention. This did not impose a heightened standard of proof beyond the civil standard. No precise form of words was required if the substance of the common intention could be ascertained.
6. In the circumstances, the parties’ communications consistently focused on replacing missing security over the shareholder loan. There was no discussion of the additional obligations, although their effect would have fundamentally altered the financing structure and exposed valuable assets. That absence was convincing evidence that the obligations were not intended. The relevant intentions of the claimant’s advisers were adopted by the claimant’s decision-maker, and the defendant’s representatives understood that the purpose was only to fill the security gap.