FSHC Group Holdings Ltd v GLAS Trust Corp Ltd
Court of Appeal
Citations: [2019] EWCA Civ 1361; [2020] Ch 365; [2020] 2 WLR 429; [2020] 1 All ER 505; [2020] 1 All ER (Comm) 719; [2020] 3 CL 47.
Facts
The parties had an agreement whereby the claimant agreed to provide security for the defendant’s clients. The claimant later learned that it had not been assigned an interest in a shareholder loan, which the agreement required. To fix this problem, the parties executed two more deeds. Although the parties intended these deeds solely to grant the claimant the missing interest, their wording imposed extra obligations on the claimant. The claimant sought rectification due to the parties’ common mistake, to remove these obligations from the deeds.
Issue(s)
- Could the deeds be rectified on the grounds of common mistake?
Decision
The Court of Appeal held in favour of the claimant. The parties had a common, continuing intention that the deeds would only grant the claimant the missing security. The deeds did more than this due to a mistake. As such, rectification was available.
This Case is Authority For…
Rectified for common mistake is available in two situations.
The first is where the parties had a pre-existing contract, which the relevant document failed to faithfully record.
In this first case, the court determines the contents of the pre-existing contract using the usual, objective rules of contractual interpretation.
The second is where there is no prior contract, but parties had a continuing common intention about a particular matter which, due to a mistake, was not recorded in the eventual written contract.
In this second case, the court looks to what the parties subjectively intended the contract to be. While there must be an ‘outward expression’ of the parties’ accord, this only means that the parties must have explicitly or implicitly reached an agreement. There must be consensus ad idem – a meeting of minds. It is not enough that, by coincidence, the parties independently hold the same intention.
The idea that the court looks for the parties’ subjective intentions when determining whether rectification should be available conflicts with the earlier Court of Appeal decision in Daventry DC v Daventry and District Housing Ltd [2011] EWCA Civ 1153. The Court of Appeal in this case argued that it was not bound by Daventry. This was because the parties in Daventry had not disputed the application of an objective test, and it conflicted with prior Court of Appeal authority: Britoil plc v Hunt Overseas Oil Inc [1994] CLC 561.
Other
The Court also noted that it is possible for a document to be rectified for unilateral mistake, though the scope of this principle is uncertain. Leggatt LJ thought that it at least applies ‘where the parties had a common intention that each had communicated to the other but one party before executing the contract realised that the document did not give effect to that intention and changed their mind without telling the other party’.
