FSHC Group Holdings Ltd v Glas Trust Corporation Ltd

JurisdictionEngland & Wales
CourtCourt of Appeal (Civil Division)
JudgeLord Justice Leggatt,Lady Justice Rose,Lord Justice Flaux
Judgment Date31 Jul 2019
Neutral Citation[2019] EWCA Civ 1361
Docket NumberCase No: A3/2018/1832

[2019] EWCA Civ 1361




Mr Justice Henry Carr


Royal Courts of Justice

Strand, London, WC2A 2LL


Lord Justice Flaux

Lord Justice Leggatt


Lady Justice Rose

Case No: A3/2018/1832

FSHC Group Holdings Limited
Glas Trust Corporation Limited

David Wolfson QC, Rosalind Phelps QC and Matthew Abraham (instructed by Allen & Overy LLP) for the Claimant / Respondent

Roger Masefield QC and Gregory Denton-Cox (instructed by Proskauer Rose (UK) LLP) for the Defendant / Appellant

Hearing dates: 22 and 23 May 2019

Approved Judgment

Lord Justice Leggatt ( with whom Lady Justice Rose and Lord Justice Flaux join):


This is the judgment of the court on an appeal which provides the opportunity for an appellate court to clarify the correct test to apply in deciding whether the written terms of a contract may be rectified because of a common mistake.



The claimant in these proceedings – referred to as “the Parent” – has claimed rectification of two deeds which it executed on 18 November 2016. The other party to the deeds, and original defendant to the claim, was Barclays Bank plc (“Barclays”) acting as security agent for various lenders. Since the judgment below was given, Barclays has been replaced as security agent and as a party to these proceedings by GLAS Trust Corporation Limited, which is the present appellant.


The purpose of executing the deeds was to provide security which the Parent had previously agreed to provide in connection with a corporate acquisition which took place in 2012. The missing security – an assignment of the benefit of a shareholder loan – was a very small piece of a complex transaction and no one had noticed the omission until it was spotted by the Parent's lawyers, Allen & Overy LLP, during a review of the security documentation in 2016.


The trial judge, the late Henry Carr J, found as a fact that, when the deeds were executed, both the Parent's representatives and those acting for Barclays understood and intended the deeds to do no more than provide the missing security. However, the mechanism chosen to achieve this was for the Parent, by entering into the deeds, to accede to two pre-existing security agreements. The effect of acceding to these agreements was not only to provide the missing security over the shareholder loan but to undertake additional, onerous obligations. The judge found that no one involved in the transaction realised before or at the time of execution of the deeds that this was their effect. The judge also concluded that it was both ‘objectively’ and ‘subjectively’ the common intention of the parties to execute a document which satisfied the Parent's obligation to grant security over the shareholder loan and which did no more than this. In these circumstances, the judge granted rectification of the deeds so as to exclude from their scope the additional obligations.


Because the appellant does not challenge any of the judge's findings of fact, if those findings are sufficient to justify granting the remedy of rectification for common mistake, the appeal must fail. The appellant argues, however, that the test for rectification is purely ‘objective’; that identifying the intention of the parties as an objective observer would have thought it to be is a question of law, on which it is open to this court to form its own opinion rather than confining ourselves to a review of the trial judge's conclusion; and that the judge was wrong to hold that, objectively assessed in this way, the parties had a common intention which was not accurately reflected in the deeds. In particular, the appellant argues that the communications between the parties would not have led an objective observer to conclude that the parties intended to do anything other or less than procure the Parent's accession to all the terms of the pre-existing security agreements – including the additional obligations.


Rectification is an equitable remedy by which the court may amend the terms of a legal document which, because of a mistake, fails accurately to reflect the intention of the parties to it. As we will discuss, for many years and indeed centuries it was understood that the intention which the court is concerned to identify in deciding whether to grant this remedy is the actual intention of the relevant party or parties as a matter of psychological fact. Recently, however, a different approach has been proposed where the document is a written contract.


In Chartbrook Ltd v Persimmon Homes Ltd [2009] UKHL 38; [2009] AC 1101 Lord Hoffmann (in a judgment with which all the other members of the appellate committee of the House of Lords agreed) expressed the view that, where the document of which rectification is sought is a written contract, the relevant test of intention is purely ‘objective’ – meaning by this what a reasonable observer with knowledge of the background facts and prior communications between the parties would have thought their common intention at the time of contracting to be.


The observations about rectification made in the Chartbrook case were recognised by the House of Lords itself to be obiter dicta, which therefore did not create a binding precedent. That was because, as a result of the conclusion reached about how the relevant contract term should be interpreted, the alternative claim to rectify the written contract did not arise. Great weight has nevertheless naturally been given to a unanimous statement of opinion by the UK's highest court. At the same time the view expressed in the Chartbrook case runs contrary to a very substantial body of learning and authority, both in England and Wales and in other common law jurisdictions, concerning the requirements for rectification based on a common mistake.


In the decade since Lord Hoffmann's observations were made, they have proved controversial and have been criticised by both academic commentators and judges: see e.g. D Hodge, Rectification (2 nd Edn, 2016), paras 3–56–3–60; Spry, Equitable Remedies (9 th Edn, 2014), 630; Chitty on Contracts (33 rd Edn, 2018), vol 1, para 3–081. When the Court of Appeal first had an opportunity to consider the significance of the Chartbrook case in Daventry District Council v Daventry & District Housing Ltd [2011] EWCA Civ 1153; [2012] 1 WLR 1333, however, both parties argued the appeal on the footing that Lord Hoffmann's analysis was correct and the court thought it right to proceed on that basis, although two of its members expressed doubts about the correctness of that analysis and each member of the court took a different view about how it was to be applied.


Uncertainty and dissatisfaction about the present state of the law has grown since the Daventry case was decided. On this appeal the question of which test of common intention is correct has been put in issue by the Parent and we think it necessary to confront it.


Before considering the law in more detail, we will first summarise the factual findings made by the trial judge, which are not challenged on this appeal. They are more fully set out in his judgment at [2018] EWHC 1558 (Ch).

The acquisition of the FSHC Group


The Parent is the holding company of the Four Seasons Health Care Group (“the FSHC Group”), which is the largest independent provider of elderly care services in the UK. A chart showing the corporate structure of the FSHC Group can be found at paragraph 55 of the judgment below.


The Parent is an indirect subsidiary of Terra Firma Capital Partners III, LP, a private equity investment fund, which acquired a controlling interest in the FSHC Group on 12 July 2012. Within the FSHC Group, a sub-group of companies known as the “High Yield Bond Group” holds the relevant assets. The acquisition was financed through a complex capital structure. This included the issue by companies in the High Yield Bond Group of senior notes in an amount of £175m and senior secured notes in an amount of £350m, along with borrowing of £40m under a term loan facility. In addition, the Parent made a shareholder loan in an amount of £220m which, via certain intermediate transactions, was used to acquire ‘deeply discounted’ bonds in one of the companies in the High Yield Bond Group.


The finance documents for the FSHC acquisition included an Intercreditor Agreement governing the relationships and priorities between the noteholders, lenders and other relevant parties (including the Parent). The intention was that the shareholder loan should be subordinate to the other finance. To that end, the Intercreditor Agreement in clause 10.6(b) imposed on the Parent an obligation to ensure that the benefit of the shareholder loan was “pledged at all times as security” for the liabilities owed by companies in the High Yield Bond Group to the holders of the senior notes and senior secured notes and the lenders under the term loan facility. This required the Parent to assign its interest in the shareholder loan as security so as to ensure that the Parent would not receive any repayment of the shareholder loan unless or until those other creditors (“the secured parties”) had first been repaid.


By clause 18 of the Intercreditor Agreement, Barclays was appointed as the security agent to act on behalf of the secured parties (amongst other things in executing security documents on their behalf) and to hold any security on trust for them.


By an oversight, the Parent did not execute an assignment of the benefit of the shareholder loan as required by clause 10.6(b) of the Intercreditor Agreement at the time of the FSHC acquisition in 2012, although no one noticed this at the time.



The finance documents also included two...

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