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

When contractual documents contain an obvious drafting error, construction and rectification are alternative remedies. The court may consider them in the order that is pragmatically appropriate.

Correction by construction remains part of the single task of contractual interpretation. It is permissible where it is clear both that something has gone wrong with the language and what a reasonable person would have understood the parties to mean.

For a registrable corporate charge, the weight given to extrinsic material depends on the nature and circumstances of the instrument. Such a charge is addressed to the parties and to persons considering extending credit or taking security from the chargor, rather than to the public at large. Material reasonably available to those persons may therefore be given full weight.

Pathway Finance S.À.R.L. granted borrowing facilities to 87 companies within the same corporate group. Each company executed an Accession Deed intended to make it party to an existing Security Agreement and grant a floating charge.

By a repeated drafting error, each deed referred to a Security Agreement dated 17 November 2016, although the relevant agreement was dated 16 September 2011. The deeds had been registered as charges under the Companies Act 2006. The defendants acknowledged service and did not contest the claim.

The court had to determine whether the error could be corrected by contractual construction, having regard to the public nature of registered charges, or alternatively by rectification.

1. Order of remedies. Construction and rectification are inconsistent remedies. The order in which they are considered is governed pragmatically. Construction will usually be considered first, but rectification may appropriately be considered first where the error is obvious. In this case construction was preferred because it minimised any residual risk to non-parties.
2. Construction and correction of error. Correction of a drafting error is part of the single task of contractual interpretation. Following Chartbrook v Persimmon Homes [2009] 1 AC 1101, the court must be satisfied that something has gone wrong with the language and that it is clear what a reasonable person would have understood the parties to mean.
3. Registered corporate charges. The different treatment of public documents is one of degree, not kind. The court must consider the nature and circumstances of the particular instrument. A registrable corporate charge is addressed to the parties and to persons who may consider extending credit to, or taking security from, the chargor during the currency of the charge. It is not addressed to the public at large merely because it may be inspected.
4. The registration regime under sections 859A to 859Q of the Companies Act 2006 principally protects the chargee’s priority against later creditors. The inspection obligations make the charge inherently public, but the relevant class of persons remains limited. The existence of the 2011 Security Agreement and the non-existence of any 2016 agreement were reasonably available to prospective creditors or secured parties, and could therefore be given full weight.
5. Objectively construed in that context, the reference in each Accession Deed to a security agreement dated 17 November 2016 meant the Security Agreement dated 16 September 2011. The requested declaration was granted. The court stated that the requirements for rectification would otherwise have been met, but did not grant that alternative relief.