Rectification for Common Mistake

25 June, 2018

In a reserved judgment handed down on 22 June 2018 in FSHC Group Holdings v. Barclays Bank plc [2018] EWHC 1558 (Ch), Mr Justice Henry Carr granted rectification of two accession deeds entered into by the claimant (parent company within the Four Seasons Healthcare group) and Barclays Bank (acting as Security Agent under the financing documentation) in November 2016, whereby the claimant agreed to be bound by all the terms of two separate security assignments executed as part of the acquisition of the group by Terra Firma in July 2012. The claimant sought rectification on the basis of an alleged common intention of the contracting parties to provide or effect only a limited form of security (namely, a pledge over certain intercompany receivables, as contractually required since July 2012) and no more. The consequence of acceding in full to the terms of the pre-existing security assignments gave rise to what the Judge described as “very significant commercial consequences” for the claimant, including primary and guarantee liabilities for the indebtedness of other group entities under the financing documentation.

The Judgment sets out the legal principles applicable to a claim for rectification for common mistake, including: the distinction(s) between different categories of mistake as to (e.g. the terms or legal effect or commercial/fiscal consequences of) the contract sought to be rectified; cases where an omission to discuss a material change to a pre-existing contractual structure can form the basis for an inference of common intention not to make such change; identification of the decision-maker(s) for the purposes of attribution or ascertainment of the relevant intention on the part of a corporate entity; and the role (if any) of subjective intention in the court’s approach to a claim for rectification post-Chartbrook v Persimmon. The decision is significant because it involves rectification of a contractual document on the basis of the effect of or consequences arising from the terms of another (pre-existing) contractual document to which it relates.

Stephen Houseman QC appeared together with Mark Howard QC (Brick Court Chambers) and Gregory Denton-Cox (4 Stone Buildings) on behalf of Barclays Bank, instructed by Martin Davies and Daniel Smith of Latham & Watkins LLP. Read the judgment in full here.