Daventry District Council v Daventry & District Housing Ltd
| Jurisdiction | England & Wales |
| Judge | Lord Justice Etherton,Lord Justice Toulson,The Master of the Rolls |
| Judgment Date | 09 May 2011 |
| Neutral Citation | [2011] EWCA Civ 1153 |
| Docket Number | Case No: A3/2010/2195 |
| Court | Court of Appeal (Civil Division) |
| Date | 09 May 2011 |
[2011] EWCA Civ 1153
COURT OF APPEAL (CIVIL DIVISION)
ON APPEAL FROM
IN THE HIGH COURT OF JUSTICE CHANCERY DIVISION
MR JUSTICE VOS
Royal Courts of Justice
Strand, London, WC2A 2LL
The Master of the Rolls
Lord Justice Toulson
and
Lord Justice Etherton
Case No: A3/2010/2195
HC09C01840
Mr Ian Croxford QC and Mr Jonathan Evans (instructed by Sharpe Pritchard) for the Appellant
Mr Nigel Jones QC and Ms Alison Meacher (instructed by Wright Hassall LLP) for the Respondent
Hearing dates : 9th and 10th May 2011
Introduction
This is an appeal from an order of Vos J dated 30 July 2010 dismissing the claim of the appellant, Daventry District Council ("DDC"), for rectification of a contract dated 5 November 2007 ("the Contract") with the respondent, Daventry & District Housing Limited ("DDH"), and an alternative claim for damages. The appeal relates only to the dismissal of the claim for rectification. The claim for rectification is on the grounds of mutual mistake or, alternatively, unilateral mistake. It focuses a spotlight on the relevance of subjective intention and objective assessment of intention and mistake in rectification claims, and on the application of the principles for rectification explained by Lord Hoffmann in Chartbrook Ltd v Persimmon Homes Ltd [2009] 1AC 1101 at [57] to [66].
The factual background
Rectification claims are highly fact specific. The factual background in the present case is extensive and detailed. In his comprehensive judgment Vos J presented the background facts over 73 paragraphs. I shall summarise the facts as briefly as possible, but it will inevitably be necessary to descend into some detail for an understanding of the appeal and its resolution. In relation to the critical period between 31 October 2007 and 5 November 2007, where the events and the number and roles of the people involved can easily present a confusing picture to the reader, I shall, for the sake of easier comprehension, deviate from a strictly chronological account. I gratefully acknowledge that my summary borrows heavily from the history comprehensively set out in the Judge's judgment.
In October 2004 the Office of the Deputy Prime Minister published the "Housing Transfer Manual 2005 Programme". The Ministerial Foreword referred to the progress that had been made in reducing the number of homes owned by councils that fell below the "Decent Homes Standard", and said that local authorities had three options where they needed additional investment to achieve this objective. One of the options was to transfer their housing stock to a Registered Social Landlord ("an RSL").
DDC wished to transfer its stock of council housing and garages to DDH, a specially formed RSL, which was incorporated on 10 April 2006 as a company limited by guarantee and was registered as a charity on 21 September 2007. In the run-up to the Contract, the newly formed DDH was managed by a board comprising 4 councillors from DDC, 4 independent directors, 3 tenants and one co-optee.
Alongside the transfer of DDC's housing stock, DDC agreed also to transfer its housing department staff to DDH. The staff were members of the section of the Local Government Pension Scheme ("LGPS") administered by Northamptonshire County Council ("NCC"). It was part of the arrangement between DDC and DDH that transferring staff should remain members of LGPS and that DDH should become a participating employer in that scheme. In common with many pension schemes, the part referable to the transferring employees was at that time under-funded. Actuarial estimates revealed that a payment of some £2.4 million was necessary to make up the deficit. It is common ground between the parties that DDC bore the primary responsibility to make up the deficit, and that it was envisaged that, going forward, DDH would be embarking upon its new activities with a fully funded pension scheme.
There were complicated negotiations concerning the calculation of the price that DDH would pay DDC. These involved a number of elements. One was a fund called the "VAT shelter" expected to amount to some £8.4 million, over a period of some 10 years from the date of the intended contract, that was to be generated by VAT concessions on the upgrading works that DDH would, in due course, undertake. So far as concerns the pension deficit, it was a matter for negotiation and agreement when or how it was to be paid.
As a shell company, limited by guarantee, and an RSL, DDH's negotiating latitude was constrained by Government regulation and the requirements of its funders, the Royal Bank of Scotland Plc ("RBS"). Throughout the process DDH was preparing a business plan to show what it would receive by way of funding and what it would spend. There were numerous incarnations of the business plan, which was an evolving document as the negotiations continued. DDH never shared its business plan with DDC, but repeatedly asserted that the business plan could only support payments of particular amounts. DDH could only sensibly agree to make payments that it was funded to make. Thus, any payment it contracted for had either to be in its business plan, as being financed by its funders RBS, or had to be met from some other defined source. The only possible such source discussed in the negotiations was the VAT shelter. The intended VAT shelter was, as I have said, estimated to yield some £8.4 million over a period of some 10 years from the date of the intended contract, but that figure was only an estimate, and was known to be subject to risks, because the rate of VAT could change and Government regulations affecting VAT could also change.
The drafting of the Contract took place in parallel with the negotiation of the commercial terms. Those responsible for the former were generally only peripherally involved with the latter and vice versa.
In June 2007 Mr Philip Heath, of DDC's solicitors, Cobbetts, sent the first draft of the Contract to Ms Carol Matthews, of DDH's solicitors, Wright Hassall LLP. It contained a draft clause 14.11.2 that provided for DDC to use all reasonable endeavours to procure that the accrued benefits of transferring employees were fully funded at the date of completion.
A revised Memorandum of Understanding signed on 2 July 2007 provided that: "Any pension under-funding will be met by the Council at the point of transfer, though this may be through a reduction in the price paid".
On 7 September 2007 Mr Brian Roebuck, who was acting for DDH in the negotiations and played a central role in them, sent Mr Ken Bruno of DDC two proposals to resolve the impasse that the negotiations had then reached.
On 20 September 2007 Mr Bruno prepared a counter-proposal from DDC to DDH referred to as "Version 1". It stated, among other things, under the heading "Context" that "DDC has a liability to cover £2.4M pensions deficit". Under the heading "Proposal" it said in paragraph 3:
"DDC proposes that DDH pays the pension fund deficit by a reduction in the purchase price of £2.4M which is then refunded to DDC as a top-slice from the VAT shelter"
Mr Bruno understood that to mean that the pension deficit would be a deduction from the valuation, and would be paid by DDH to NCC, and that £2.4 million would be top-sliced from the VAT shelter to DDC to represent DDH's share of the deficit.
Version 1 was passed to Ms Hayley Davies of DDH on 20 September 2007. Later on that day a DDH board meeting took place, which was attended by 10 directors and 10 advisers, the latter group including Ms Matthews, Mr Nigel Page of PriceWaterhouseCoopers, Ms Davies, Ms Lindsay Williams, DDH's chief executive, and Mr Roebuck. Ms Davies handed Mr Roebuck a copy of Version 1 before the start of the meeting. He looked briefly at it, and told her that he did not think the numbers would work. The Judge found that Mr Roebuck immediately understood Version 1 to be saying that DDH would pay the pension deficit in addition to allowing a further £2.4 million by way of top slice to DDC. Mr Roebuck decided, however, during the board meeting to construe Version 1 as meaning that DDH would not have to pay the pension deficit. He announced at the end of the meeting that he thought that Mr Bruno's latest proposal was workable. Each of Ms Davies, Ms Williams and Ms Elaine Bradbury, the chair of DDH, derived their understanding of Version 1 from Mr Roebuck. They all shared his stated understanding.
On 21 September 2007 Mr Bruno telephoned Ms Davies to ask what Mr Roebuck's reaction had been to Version 1. Ms Davies told Mr Bruno that Mr Roebuck thought that DDH might be able to agree the proposal, subject to some adjustment on set-up costs. Mr Bruno, from that moment on, proceeded on the basis that an agreement in principle had been reached and that his proposal had been agreed. The Judge found that Mr Roebuck knew from 20 September 2007 onwards that Version 1 could be read in two ways and that Mr Bruno had intended it to be read as requiring DDH to pay the pension deficit.
On 3 October 2007 there was a page turning session to go through the latest (fourth) draft of the Contract that had undergone significant amendment since the original draft of June 2007. That meeting was attended by, among others, Mr Bruno, Mr Mark Longhill of DDC's advisers Tribal Consulting, and DDC's solicitors, Mr Heath and Ms Elizabeth Hargreaves, and, on the part of DDH, by Ms Williams and DDH's solicitor, Ms Matthews. The draft had, by that time, been commented upon by both parties and by Ms...
To continue reading
Request your trial
-
Blatchford Ltd (formerly Chas A Blatchford & Sons Ltd) v Brian Stephen Blatchford
...Homes Ltd [2009] 1 AC 1101 and Etherton LJ's formulation of the test in Daventry District Council v Daventry and District Housing Ltd [2011] EWCA Civ 1153. The position is summarised in the judgment at [176] under the heading: “Conclusion on the law”. “For all these reasons, we are unable ......
-
Liberty Mercian Ltd v Cuddy Civil Engineering Ltd (1st Defendant) Cuddy Demolition and Dismantling Ltd (2nd Defendant)
...of Lords in Chartbrook as well as the recent analysis of the law of rectification by the Court of Appeal in Daventry District Council v Daventry and District Housing Limited [2012] 1WLR 1333. 113 Liberty Mercian submits that, adopting the approach set out by Lord Neuberger in Daventry at [2......
-
Between IBM United Kingdom Pensions Trust Ltd v Ibm United Kingdom Holdings Ltd and Others
...given the concurrence of the other Law Lords hearing the appeal. This was the approach taken by the Court of Appeal in Daventry DC v Daventry District Housing Ltd [2012] 1 WLR 1333 (" Daventry") albeit with reservations being expressed by the Master of the Rolls and Toulson LJ. At [48], Lor......
-
Mark Forstater and Another v Python (Monty) Pictures Ltd and Another
...shared knowledge. 88 This summary is meant to replicate, and to apply to this case, the law as stated in Daventry District Council v Daventry & District Housing Association Limited [2011] EWCA Civ 1153: and it is by reference to the Daventry decision itself that I have directed myself. 89 T......
-
Court Of Appeal Clarifies Test For Rectifying Terms Of Written Contract For Common Mistake
...or saw no reason to differ from Lord Hoffmann's observations. In Daventry District Council v Daventry & District Housing Ltd [2011] EWCA Civ 1153, the Court of Appeal proceeded on the basis that Lord Hoffmann's observations in Chartbrook were correct, while recognising that they were ob......
-
Mistakes Will Happen: English Court Of Appeal Clarifies The Test For Rectification For Common Mistake
...2 [2009] UKHL 38, as subsequently applied by the Court of Appeal in Daventry District Council v Daventry & District Housing Ltd [2011] EWCA Civ 1153 Visit us at Mayer Brown is a global legal services provider comprising legal practices that are separate entities (the "Mayer Brown Practi......
-
Rectification Ordered Even Where Party Failed To Read Document Properly
...District Council –v- Daventry & District Housing Limited [2011] EWCA Civ 1153 This case involved a transfer (or outsourcing) of council housing by Daventry District Council to DDH, a new company set up as a charity to take it over. The purchase was being funded by RBS. The matter at iss......
-
Court Allows Rectification Of A Charter Restructuring Agreement On The Grounds Of Common Mistake
...reflect the common intention. The Court considered the rectification examples given in Daventry DC v Daventry and District Housing Ltd [2011] EWCA Civ 1153. This situation fell squarely within one of those examples, i.e. that the parties were subjectively and objectively in agreement but th......
-
Contractual Interpretation: Do Judges Sometimes Say One Thing and Do Another?
...Rintoul Group Limited v Far North District Council [2017] NZHC 1132. 35 Daventry District Council v Daventry and District Housing Ltd [2011] EWCA Civ 1153 [ Daventry ] at 80. 10 Canterbury Law Review [Vol 23, 2017] (3) such common continuing intention is to be established objectively, that ......
-
Rectifying the Course of Rectification
...Rentcharges Act 1977.Rectifying the Course of RectificationPaul S. Davies*In Daventry District Council vDaventry & District Housing Ltd [2011] EWCA Civ 1153, the majorityof the Court of Appeal held that a contract should be rectified because of a common mistake.This note discusses that decisi......
-
CLARIFYING RECTIFICATION IN SINGAPORE
...Hodge QC, Rectification: The Modern Law and Practice Governing Claims for Rectification for Mistake (Sweet & Maxwell, 2010) at p vii. 10[2012] 1 WLR 1333 at [194]. 11[2013] 4 SLR 193. 12 Sembcorp Marine Ltd v PPL Holdings Pte Ltd [2013] 4 SLR 193 at [38]–[40] and [65]. 13 [1982] 2 EGLR 111.......