Introduction

FSHC Group Holdings Ltd v. Glas Trust Corporation Ltd ([2019] EWCA Civ 1361) is a landmark decision by the England and Wales Court of Appeal's Civil Division that delves deep into the principles governing the rectification of contracts due to common mistakes. The case revolves around FSHC Group Holdings Ltd ("the Parent") seeking rectification of two deeds executed on November 18, 2016, against Glas Trust Corporation Ltd ("GLAS")—originally Barclays Bank plc ("Barclays") acting as a security agent for various lenders and later replaced by GLAS.

The central issue was whether the written terms of a contract could be rectified based on a common mistake, specifically whether the parties had a common intention that was not accurately reflected in the executed deeds. This case provided the appellate court an opportunity to clarify the correct test for rectification: whether it should be based on an objective assessment or rely on the parties' subjective intentions.

Summary of the Judgment

The trial judge, Henry Carr J, found that both the Parent and Barclays understood the deeds to fill a specific gap in their security documentation—specifically, to assign the benefit of a shareholder loan. However, the executed deeds inadvertently included additional, onerous obligations under the Intercompany Receivables Security Assignments (IRSAs) that neither party had intended. The judge concluded that the parties had a common intention to execute a document that only fulfilled the known obligations and nothing more, justifying rectification to exclude these unintended obligations.

On appeal, GLAS contested the trial judge's findings, arguing for an objective test in assessing the common intention—akin to how contracts are interpreted rather than rectified. They maintained that an objective observer, considering all background facts, would conclude that the parties intended to accede to all terms of the IRSAs, including the additional obligations.

The Court of Appeal unanimously upheld the trial judge's decision, affirming that the correct approach for rectification in cases of common mistake should consider the actual, subjective intentions of the parties rather than an objective standard.

Analysis

Precedents Cited

The judgment extensively referenced pivotal cases and legal doctrines that have shaped the understanding of rectification in English law:

• Chartbrook Ltd v Persimmon Homes Ltd [2009] UKHL 38: Lord Hoffmann posited an objective test for rectification, suggesting that it's based on what a reasonable observer would perceive as the parties' common intention.
• Joscelyne v Nissen [1970] 2 QB 86: Established that rectification does not require a prior concluded contract but does require a common intention that must be proven objectively through outward expressions.
• Britoil plc v Hunt Overseas Oil Inc [1994] CLC 561: Highlighted the necessity of an actual common mistake and emphasized that subjective intentions remain paramount.
• Lovell & Christmas Ltd v Wall (1911) 104 LT 85: Reinforced that rectification is grounded in the actual intentions of the parties rather than an objective standard.

Legal Reasoning

The court grappled with the tension between traditional equitable principles—which prioritize the actual, shared intentions of the parties—and the newer, objective approach suggested by Lord Hoffmann in the Chartbrook case. Drawing from established precedents like Joscelyne v Nissen and Britoil plc v Hunt Overseas Oil Inc, the Court of Appeal reaffirmed that rectification should be predicated on the parties' subjective common intention.

The court reasoned that enforcing an objective standard—what a reasonable observer might infer—could lead to injustices, allowing rectification based on uncommunicated agreements or assumptions that were never intended by the parties. Upholding subjective intentions ensures that rectification remains a fair and equitable remedy, preventing parties from being bound by unintended contractual obligations simply due to their objective interpretations.

Impact

This judgment has significant implications for the realm of contract law:

• It solidifies the traditional stance that rectification requires proof of a subjective common intention and a mutual mistake in the contractual documentation.
• It curtails the expansive, objective interpretations proposed in Chartbrook, ensuring that rectification remains anchored in the actual agreements and understandings of the contracting parties.
• Future cases will likely adhere to this clarified standard, promoting consistency and fairness in the application of rectification as an equitable remedy.

Complex Concepts Simplified

Rectification

Rectification is an equitable remedy that allows courts to amend written contracts to reflect what the parties actually intended, especially when mutual mistakes have led to inaccuracies in the documentation.

Common Mistake

A common mistake occurs when both parties share the same erroneous belief about a fundamental aspect of the contract at the time of its formation.

Objective vs. Subjective Test

• Objective Test: Assesses the contract based on what a reasonable observer would interpret the parties' intentions to be, without delving into their actual beliefs or thoughts.
• Subjective Test: Focuses on the actual intentions and understandings of the parties involved, irrespective of how an external observer might interpret their actions or communications.

Conclusion

The FSHC Group Holdings Ltd v Glas Trust Corporation Ltd case is pivotal in reaffirming the necessity of a subjective common intention in the rectification of contracts due to common mistakes. By aligning with longstanding precedents and upholding the traditional equitable principles, the Court of Appeal ensures that rectification remains a fair tool for correcting genuine mutual mistakes, rather than a mechanism susceptible to broad, objective interpretations that could undermine contractual certainty and fairness.

This judgment not only clarifies existing legal standards but also safeguards the interests of parties in contractual agreements, ensuring that equity and justice prevail in instances of mutual oversight or error.