FSHC Group Holdings Ltd v Glas Trust Corporation Ltd (Rev 1)

A written contract may be rectified for common mistake where it fails to record the parties’ actual common intention at execution. Where there is no prior concluded contract, each party must have held the relevant intention and, through communication, understood that the other shared it. The required outward expression of accord may be tacit; it need not be stated in express words.

The objectively inferred intention proposed in Chartbrook Ltd v Persimmon Homes Ltd [2009] UKHL 38 is not the correct test for rectification based on a non-binding common intention. The claimant must prove a real mistake about the document’s legal effect, rather than merely an error about its commercial consequences or motives.

The Parent had failed to provide security over a shareholder loan as required by an intercreditor agreement. To remedy the omission, it executed deeds acceding to existing intercompany security assignments. The deeds assigned the shareholder loan, but also made the Parent liable for wider group debts and exposed its other assets to security.

Henry Carr J held that both parties intended only to provide the missing shareholder-loan security and ordered rectification: [2018] EWHC 1558 (Ch). The security agent appealed. The central issue was whether common intention for rectification of a contract is determined solely objectively, or by the parties’ actual intentions communicated to each other.

1. Appeal dismissed. The unchallenged findings established that, when the deeds were executed, both parties intended them to provide security over the shareholder loan and no more. That intention was communicated and mutually understood. The deeds therefore failed, through common mistake, to record the parties’ common intention.

2. The court held that rectification of a written contract for common mistake requires either a document which fails to give effect to a prior concluded contract, or proof that at execution the parties had an actual common intention concerning the relevant matter which the document mistakenly failed to record. In the latter situation, it is also necessary to prove an outward expression of accord: communication from which each party understood that the other shared that actual intention. The communication may be tacit.

3. The court followed Joscelyne v Nissen [1970] 2 QB 86 and Britoil plc v Hunt Overseas Oil Inc [1994] CLC 561. It declined to accept the purely objective approach expressed obiter in Chartbrook Ltd v Persimmon Homes Ltd [2009] UKHL 38. Rectification based on a non-binding common intention rests on equity and conscience, not on enforcing an objectively inferred earlier bargain in preference to the final contract.

4. The mistake concerned the deeds’ legal effect. The parties intended to bind the Parent only to the security terms needed to assign the shareholder loan. They did not intend the additional obligations contained in the incorporated security agreements. This was not merely a mistake about the commercial consequences of the transaction.

5. There was consequently no basis to disturb the order rectifying the deeds to exclude the additional obligations.

• Court of Appeal (Civil Division): Dismissed the security agent’s appeal and upheld rectification: [2019] EWCA Civ 1361.

• Business and Property Courts of England and Wales (Chancery Division): Henry Carr J ordered rectification of the accession deeds: [2018] EWHC 1558 (Ch).