Persimmon Homes Ltd v Hillier & Anor

Factual and Procedural Background

This appeal arises from an order made by John Martin QC, sitting as a Deputy High Court Judge, which ordered the rectification of a share sale agreement and a related disclosure letter, and declared the appellants to be in breach of warranties under the rectified agreement, making them liable to pay damages. The appellants, who had operated a housebuilding business mainly in Kent and Sussex through various companies, sold shares in two companies and a freehold office building to the respondent, a major housebuilding company holding significant land for future development. The rectification concerned warranties relating to ownership of certain freehold properties (the Felbridge freeholds) which were, at the time, owned by a different group company than that stated in the agreement. The judge found that the agreement and disclosure letter did not accurately reflect the parties' common intention that the freeholds would be included in the sale of one of the companies and therefore ordered rectification. The appellants appealed on two grounds: that the judge erred in ordering rectification and that the disclosure letter was legally incapable of being rectified.

Legal Issues Presented

1. Whether the judge was correct to order rectification of the share sale agreement and the related disclosure letter on the evidence before him.
2. Whether, as a matter of law, a disclosure letter of this nature is capable of being rectified.

Arguments of the Parties

Appellants' Arguments

• The judge was wrong to order rectification of the agreement and disclosure letter based on the evidence.
• The disclosure letter, being a unilateral notification document, is not susceptible to rectification as it merely sets out facts existing at the date of the letter and rectification would improperly rewrite history.
• The heads of terms, agreed in August 2012 and reinstated after price negotiations, should be the definitive record of the parties’ intentions, which excluded the Felbridge freeholds from the sale of the relevant company.
• The judge failed to make findings of fact regarding a key telephone conversation between the respondent’s finance director and the lead partner at the sellers’ advisors, which was critical to identifying the commercial deal struck.
• A sophisticated buyer like the respondent would have known that purchasing the shares would only transfer assets owned by that company, and the Felbridge freeholds were owned by a different company.

Respondent's Arguments

• The warranties given in the share sale agreement and the disclosure letter did not reflect the parties’ common continuing intention that the Felbridge freeholds would be included in the sale of the relevant company.
• The entire Felbridge site was consistently treated as being included in the sale through the course of negotiations and documentation prior to and including the share sale agreement.
• The disclosure letter is an integral part of the contractual documentation and is capable of rectification where it does not give effect to the parties’ common intention.
• The absence of direct oral evidence about the telephone conversation was adequately compensated by contemporaneous email evidence summarizing the discussion, which the judge correctly accepted.
• The controlling shareholders had the ability to ensure the freeholds were included in the company sold, and thus the mechanics of ownership were a matter for the appellants, not the respondent.

Table of Precedents Cited

Court's Reasoning and Analysis

The court carefully reviewed the factual matrix, including detailed negotiations, correspondence, and contemporaneous documentation, to determine the parties' common intention regarding the inclusion of the Felbridge freeholds in the share sale. The judge had found that despite the freeholds being owned by a different company within the group, the controlling shareholders intended for those freeholds to be included in the sale of the relevant company and warranted as such. The court accepted that the heads of terms were not definitive and that the entire course of dealings must be considered. The judge's acceptance of an email summarizing a key telephone conversation, in the absence of oral evidence, was deemed appropriate and sufficient to ascertain the content of that discussion. The court rejected the appellants’ argument that the disclosure letter, as a unilateral notification document, was incapable of rectification, holding that it formed part of the contractual documentation and could be rectified to reflect the common intention. The court emphasized that rectification does not rewrite history but gives effect to the parties' true agreement. The judge's conclusion that the agreement and disclosure letter did not accurately record the transaction terms was supported by the evidence and sound in law.

Holding and Implications

The appeal is dismissed.

The court upheld the order for rectification of both the share sale agreement and the disclosure letter, confirming that the appellants are in breach of warranties and liable to pay damages. The decision clarifies that disclosure letters, though unilateral in form, may be rectified where they fail to reflect the parties’ common intention. No new precedent beyond the application of established principles was set. The direct effect is the enforcement of the rectified terms against the appellants and affirmation of the respondent's entitlement to damages under the warranties as rectified.