• In the case of FSHC Group Holdings Ltd v GLAS Trust Corp Ltd [2019] EWCA Civ 1361, it was held that an agreement to execute a document may be enforced via rectification even if it consisted of different contractual terms unless the circumstances illustrated that the parties had only a common continuing intention.
  • This case involved contract terms, common mistake and rectification.
  • This case is about contract law and banking law.

Facts of the Case

  • C and Dentered a private equity financing transaction. C provided security but four years later, proof of this documentation over the shareholder loan was not found.
  • Later the lower courts held there could be rectification because both parties intended to execute a document providing information on the overall funding.
  • D referred to Chartbrook Ltd v Persimmon Homes Ltd [2009] UKHL 38 to claim in this appeal that assuming the intentions of contracting parties is an objective test to allow rectification.

Issues

  • Should there be rectification on the ground of common mistake?
  • What did the contracting parties intend?
  • What are the correct legal tests?

Held by Court of Appeal

  • Appeal dismissed – there was a common mistake regarding the accession deeds and the contracting parties only intended to execute a document regarding the shareholder loan. The accession deeds filled the gap in the security.

Leggatt LJ

Rectification

  • Rectification is about the state of mind of the contracting parties. It is not about using a reasonable observer test as per Inland Revenue Commissioners v Raphael [1935] A.C. 96.
  • “Rectification is an equitable remedy by which the court may amend the terms of a legal document which, because of a mistake, fails accurately to reflect the intention of the parties to it.” [6]
  • The case of Joscelyne v Nissen [1970] 2 QB 86 established that a previous contract is not required for rectification.

Common mistake

  • D contended following Daventry DC v Daventry and District Housing Ltd [2011] EWCA Civ 1153 that the test of common mistake is objective and based on a reasonable bystander.
  • “It is contrary to good faith for a party to take advantage of a mistake made in drawing up a written contract by seeking to apply the contract inconsistently with what that party knew to be the common intention of the parties when the document was executed.” [55]
  • “In the case of common mistake it is inequitable for a party to the contract to seek to apply the contract inconsistently with what that party knew to be the common intention of the parties when the written contract was executed. The doctrine of unilateral mistake extends this principle to the situation where a party seeks to apply the contract inconsistently with what that party knew the other party believed to be the common intention of the parties when the written contract was executed.” [105]

Intentions

  • Courts must prove contracting parties had the same intention to form the subject matter of the contract and that each party understood each other’s intentions.
  • “It is necessary to show that at the time of executing the written contract the parties had a common intention (even if not amounting to a binding agreement) which, as a result of mistake on the part of both parties, the document failed accurately to record. This requires convincing proof to displace the natural presumption that the written contract is an accurate record of what the parties agreed.” [46]
  • “The communication necessary to establish an outwardly expressed accord or common intention which each party understands the other to share need not involve declaring that agreement or intention in express terms. The shared understanding may be tacit.” [81]

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