FSHC Group Holdings Ltd v Barclays Bank Plc

JurisdictionEngland & Wales
CourtChancery Division
JudgeMr Justice Henry Carr
Judgment Date22 Jun 2018
Neutral Citation[2018] EWHC 1558 (Ch)
Docket NumberCase No: HC-2017-001662

[2018] EWHC 1558 (Ch)







The Rolls Building

7 Rolls Buildings

Fetter Lane, London, EC4A 1NL


Mr Justice Henry Carr

Case No: HC-2017-001662

FSHC Group Holdings Limited
Barclays Bank Plc

Mr David Wolfson QC, Ms Rosalind PhelpsQC, andMr Matthew Abraham (instructed by Allen & Overy LLP) for the Claimant

Mr Mark Howard QC, Mr Stephen HousemanQC, andMr Gregory Denton-Cox (instructed by Latham & Watkins LLP) for the Defendant

Hearing dates: 11 & 14–17 May 2018

Mr Justice Henry Carr



This is a claim for rectification of two Deeds (“the 2016 Accession Deeds”) which were entered into on 18 November 2016 between the Claimant (“the Parent”) and the Defendant (“Barclays”). The basis of the claim is common mistake. The parties entered into the 2016 Accession Deeds, in the case of the Parent as a security provider, and in the case of Barclays as a Security Agent and trustee for secured creditors, pursuant to finance documents carried out in 2012.


The Parent contended that the 2016 Accession Deeds do not accurately reflect the state of agreement between the parties. It submitted that, from contemporaneous documents, what the mistake was, how the mistake happened, and how it ought to be corrected, are all apparent.


The Parent summarised its case as follows: The terms of a private equity financing transaction completed in 2012 required the Parent to provide security over a shareholder loan which was part of the overall funding. Having belatedly spotted, in 2016, that the relevant security documentation had either never been provided or could not now be located, an attempt was made by the Parent to provide that security by way of the 2016 Accession Deeds. By a mistake, far more onerous obligations were undertaken by the Parent than were required (“the Additional Obligations”). There was no intention on either side for the Parent to provide the Additional Obligations; the intention was only to make good the missing security over the shareholder loan; as the Parent put it to “ fill the gap”. In light of the Additional Obligations themselves, and also in the context of the parties' commercial relationship, it made no sense for the Parent to undertake them. By this rectification claim, the Parent seeks to delete the Additional Obligations.


Barclays, as security agent, has no economic interest in the outcome of these proceedings. It is acting on the instructions, at least primarily, of H/2 Capital Partners (“H/2”), a privately-owned US based hedge fund which holds the majority of the relevant debt. If the claim fails, the Parent contended that H/2 would receive a valuable windfall, in the form of a guarantee claim against the Parent (which the Parent contended was potentially worth hundreds of millions) and indirect recourse to valuable assets owned by the Parent. This is of importance as, in the accounts of Elli Investments Limited as of 31 December 2016, there is a material uncertainty which may cast doubt on the ability of that company to continue as a going concern. Yet no consideration was given for the guarantee which was provided by the Parent. This, it submitted, would be a commercially absurd outcome, which was not intended by either of the parties to the 2016 Accession Deeds.


Barclays presented a different case theory. In summary, it submitted that the 2016 Deeds were short, simple and unambiguous documents drafted by the Parent's lawyers, reviewed and recommended for execution by the Parent by an internal lawyer for the Parent's ultimate parent company, and put forward to Barclays for execution once they had already been executed by the Parent. By the 2016 Accession Deeds, the Parent acceded to and agreed to be bound by all the terms of existing security documents (the Intercompany Receivables Security Assignments; the “IRSAs”) which had previously been executed between Barclays and other parties to the original transaction.


A failure to provide security would amount to a Default under the relevant financing documents, which would in turn (according to Barclays) become an Event of Default, with potentially very serious consequences for the Parent, if not remedied within 30 business days. In addition, a quarterly compliance certificate was required to be filed by 28 November 2016, and having the security in place would enable a clean certificate to be given.


Barclays argued that a deliberate choice was made by the Parent to seek to remedy the Default through the device of an accession to a pre-existing security agreement, because it was considered that Barclays would be more comfortable with, and execute more quickly, a document to whose terms Barclays had already agreed. Seeking to negotiate a new, bespoke, security agreement with Barclays would increase the prospects of the issue (and the potential Event of Default) coming to the attention of the creditors for whom Barclays was agent, during restructuring negotiations that were ongoing with those creditors at the time.


Barclays submitted that in taking advantage of this expediency, the Parent failed to investigate or think through its possible consequences. According to Barclays, the Parent now seeks, through rectification of the 2016 Accession Deeds, to create, retrospectively, a bespoke document of the sort that it chose, in its own interests, not to seek to negotiate during the time-sensitive period in question in November 2016.


It was common ground that the key question for the court is: what was the parties' intention, assessed objectively, when they executed the 2016 Accession Deeds, and whether the parties shared a common intention. However, the parties' submissions as to common intention were diametrically opposed.


The Parent submitted that an objective observer would readily conclude that the common intention was to do no more than “ fill the gap” left by the failure to provide security in 2012. The effect of the 2016 Accession Deeds was to massively overreach the gap. They fundamentally altered the existing capital structure of the deal, by giving the creditors recourse to assets which were hitherto, and intentionally, outside the structure set up in 2012.


Barclays submitted that an objective observer would conclude that: (a) the Parent, in conditions of some urgency, took the view that by acceding to the IRSAs it would at least plug the gap left by the missing security (a matter on which Barclays was not required to form any view); (b) Barclays was prepared to accede to such security having done so previously; (c) the parties did not concern themselves with whether by providing security in this form and as a matter of expediency, the Parent did more than was strictly required; and (d) the Parent took on the obvious risk that it would do more than was strictly required to plug the gap. In those circumstances, it was impossible to conclude that the parties had any shared common intention when they entered into the 2016 Accession Deeds other than that the Parent would be bound by all of the terms of the IRSAs including those which they now seek to avoid.


It will be apparent from this introduction that this is a difficult case, with very significant commercial consequences. Rectification cases are fact sensitive, and resolution of this dispute requires an intense focus on the facts.

Legal Principles


Various aspects of the law in relation to common mistake were discussed by the parties, which I summarise below.

The juridical basis of the doctrine


A helpful summary of the juridical basis for rectification on the ground of common mistake is set out in Hodge, Rectification (2 nd Ed, 2016) at [1–02]:

“Where the terms of the document fail to reflect the true accord between the parties, the document may be rectified so as to make it correspond to their common agreement or understanding. The proper function of rectification is to correct a mistake in the way in which the written document has purported to record the parties' transaction: it is about putting the record straight.”


This summary is supported by the decision of the Court of Appeal in Allnutt v Wilding [2007] EWCA Civ 412. Mummery LJ stated at [5] that rectification is but one aspect of a wider equitable jurisdiction to relieve parties from the consequences of their mistakes. He referred at [10] to the statement of Rimer J at first instance that the function of the equitable doctrine is to enable the parties to correct the way in which their transaction has been recorded.” Mummery LJ said at [11]: “In other words it is about putting the record straight.”


The jurisdiction cannot be exercised to relieve a party of the consequences of a bad bargain. As Lord Walker in Pitt v Holt [2013] 2 AC 108 at [131]:

“Rectification is a closely guarded remedy, strictly limited to some clearly-established disparity between the words of a legal document, and the intentions of the parties to it. It is not concerned with consequences.”


It follows that the court does not have a roving commission to do whatever it regards as fair in relation to a claim for rectification: per Neuberger J in Holaw (470) Ltd v Stockton Estates Ltd (2001) 81 P&CR 404 at [41]. On the other hand, the court is exercising an equitable jurisdiction and in circumstances where an objective observer would conclude that the parties had a continuing common intention which their agreement does not reflect, it may be inequitable not to rectify the agreement.

The distinction between a mistake as to legal effect and consequences


As indicated in the passage cited above from Pitt v Holt, there is a distinction between a mistake as to the legal effect of a document and a mistake merely...

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