Pathway Finance SARL v The Defendants Set Out In Annex 1 To the Claim

The court was asked to rectify or construe 87 Accession Deeds that incorrectly referred to "a security agreement dated 17th November 2016" when the underlying security agreement was dated 16 September 2011. The judge accepted that the wording in the Accession Deeds was a drafting error and that the parties and relevant third parties would have been aware of the true 16 September 2011 Security Agreement. The court applied ordinary principles of contractual interpretation (Chartbrook/Starsin authorities) and considered the effect of the public, registrable nature of corporate charges under the Companies Act 2006 (ss 859A–859Q) when deciding what extrinsic material may be admitted.

Having concluded that the Accession Deeds were addressed to the parties and to third parties likely to inspect because they contemplated extending credit or taking security from the chargor, the judge held that the relevant extrinsic facts were reasonably available to those persons and could be given full weight.

Accordingly the court declared that references to "a security agreement dated 17th November 2016" in the Accession Deeds should be construed as referring to "a security agreement dated 16th September 2011". The judge also noted that, had construction not been available, rectification would have been granted on the evidence.

This is a first instance claim by Pathway Finance S.À.R.L. seeking declarations, alternatively rectification, in relation to 87 Accession Deeds executed by group companies. The deeds were executed to accede borrowers to a Facility Agreement and to a Security Agreement that granted Pathway a first-ranking floating charge. Each Accession Deed, following an erroneous precedent, defined the Security Agreement as "dated 17th November 2016" when in fact the Security Agreement was dated 16 September 2011; the Facility Agreement alone had been amended on 17 November 2016.

The claimant applied for a declaration as to the correct construction of the Accession Deeds and, in the alternative, equitable rectification. The defendants did not contest the claim. The Accession Deeds had been filed at Companies House and registered as charges under the Companies Act 2006. That raised a discrete issue: to what extent could extrinsic evidence be used to interpret a registrable corporate charge which is publicly available and intended for inspection by potential third-party creditors.

The court framed the issues as:

• whether the Accession Deeds should be construed as referring to the 16 September 2011 Security Agreement despite the erroneous date;
• whether extrinsic material known to the parties (and to potential inspecting third parties) could be admitted in construing a registrable corporate charge;
• whether rectification was alternatively appropriate.

The judge heard evidence from three witnesses (the group general counsel, and directors who had signed the deeds) and accepted their evidence that the misdating was an obvious drafting error, that the parties were aware of the true Security Agreement, and that it was unlikely that third parties had been prejudiced. In applying established interpretative principles (including Chartbrook and The Starsin), the judge identified the relevant class of persons to whom these Accession Deeds were addressed as the parties and third parties likely to inspect because they might extend credit or take security from the chargor. The judge held that the non-existence of any Security Agreement dated 17 November 2016 and the existence of the Security Agreement dated 16 September 2011 were facts reasonably available to that class, and so admissible and weighty as background in interpretation.

On that basis the court declared that the words "a security agreement dated 17th November 2016" in Recital (B) of the Accession Deeds meant "a security agreement dated 16th September 2011". The judge preferred to decide by construction rather than rectification to minimise any risk of prejudice to unidentified third parties, but recorded that rectification would have been available had construction been inappropriate.

At first instance the claim succeeded. The court granted the claimant's primary declaratory relief: the phrase "a security agreement dated 17th November 2016" in Recital (B) of each Accession Deed is to be construed as "a security agreement dated 16th September 2011". The rationale was that the misdating was a clear drafting error, the true facts were known or reasonably available to the parties and to third parties likely to inspect the registered charge, and ordinary principles of contractual interpretation permitted extrinsic material to correct the obvious mistake; rectification would have been available in any event but construction was preferred to limit potential prejudice to non-parties.