SATA Internaçional - Azores Airlines SA v Hi Fly Limited

Contractual construction is objective and begins with the words used in their admissible commercial and factual context. Specific provisions may qualify a general release or preservation clause. A clause allocating accrued payments by reference to an economic closing date may transfer the right to recover later-accruing sums, even though legal transfer occurs later.

Rectification for shared mistaken belief requires proof, on the balance of probabilities, of a definite positive subjective intention held by all relevant contracting parties, together with an outward expression of accord showing that they understood the intention to be shared. Rectification remains exceptional. It corrects the written embodiment of an agreement and does not remake the bargain.

SATA leased an aircraft from Hi Fly. The aircraft was sold to AELF, which became the lessor under a novation agreement. The lease was then terminated under a related agreement. The novation distinguished an “Economic Closing Date” of 1 September 2019 from the “Effective Time” of 8 April 2020 and allocated rent and maintenance reserve payments by reference to those dates.

SATA contended that liabilities accruing after 1 September 2019 had transferred to AELF and were settled by the termination agreement. Hi Fly and AELF contended that the liabilities remained payable to Hi Fly. The issues were whether the novation had that effect on its true construction and, if so, whether it should be rectified for mistake.

1. Construction. The novation agreement was construed objectively, by reference to its language, structure, admissible background and commercial consequences. Subjective beliefs and negotiations were irrelevant to construction. Clause 2.1 imposed a general release, qualified by clauses 2.3 and 7. Clause 7.3 was the specific regime governing rent, maintenance reserve payments and default interest, and prevailed over any apparent inconsistency with clause 2.3.
2. Clause 7.3 transferred to AELF the right to recover rent, maintenance reserve payments and default interest relating to periods from 1 September 2019. Amounts relating to earlier periods remained payable to Hi Fly. The clause concerned entitlement, not merely a payment mechanism. The reference to non-existent clause 7.4 could not be corrected by construction, but this did not affect the result.
3. Rectification for shared mistaken belief. Under FSHC Group Holdings Ltd v Glas [2019] EWCA Civ 1361, rectification in this category requires proof that each party had the same definite positive subjective intention and that, through mutual communications, the parties understood that intention to be shared. Mere failure to consider an issue, objective reasonableness, or coincidental similarity of belief is insufficient. The relevant proof is on the balance of probabilities, although strong evidence is required to overcome the executed document.
4. The relevant decision-makers were the natural persons who in reality decided to enter the agreement. Here they were Mr Mirpuri for Hi Fly, Mr Hollnagel for AELF and Mr Chaves for SATA. The evidence showed that each positively believed that pre-Effective Time arrears would remain payable to Hi Fly, and that the parties had the necessary accord. SATA’s present reconstruction that Mr Chaves believed all arrears would transfer to AELF was inconsistent with the contemporaneous correspondence and subsequent conduct.
5. The unilateral mistake alternative would also have succeeded. Mr Chaves knew that Hi Fly believed it would remain entitled to the arrears, and allowed the agreement to be concluded on that basis.
6. The novation agreement was therefore rectified by substituting “Effective Time” for “Economic Closing Date” in clause 7.3, or by equivalent deletion of clause 7.3 if necessary. Hi Fly was entitled to a money judgment. The precise form of order and costs were reserved for further submissions.