Dear All,

The Court of Appeal of England and Wales handed down judgment yesterday in FSHC Group Ltd v Glas Trust Corporation Limited [2019] EWCA Civ 1361.

The decision clarifies the correct test for rectification of a written contract due to common mistake. 

In particular, the key question was whether Lord Hoffmann was correct in obiter dicta in Chartbrook Ltd v Persimmon Homes Ltd [2009] UKHL 38 (in a judgment with which the other members of the House agreed) that where a party seeks to rectify a written contract, the relevant test of intention is purely objective i.e. what a reasonable observer (with knowledge of the background facts and prior communications between the parties) would have thought the parties’ common intention at the time of contracting to be.

The Court of Appeal (in a judgment given by Leggatt LJ with whom Rose and Flaux LJJ joined) concluded at [176] that it was “unable to accept that the objective test of rectification for common mistake articulated in Lord Hoffmann's obiter remarks in the Chartbrook case correctly states the law. We consider that we are bound by authority, which also accords with sound legal principle and policy, to hold that, before a written contract may be rectified on the basis of a common mistake, it is necessary to show either (1) that the document fails to give effect to a prior concluded contract or (2) that, when they executed the document, the parties had a common intention in respect of a particular matter which, by mistake, the document did not accurately record. In the latter case it is necessary to show not only that each party to the contract had the same actual intention with regard to the relevant matter, but also that there was an "outward expression of accord" – meaning that, as a result of communication between them, the parties understood each other to share that intention.”

In reaching that conclusion, the Court had regard not just to previous authority in England and Wales, but also a significant volume of academic and extra-judicial commentary.  Indeed, the Court noted (at [129]) that it had been provided at its request with a full bundle of relevant academic and extra-judicial commentary.   It further noted (at [130]) that the controversial nature of the issues was reflected in the number of lectures, unprecedented in its experience, in which judges or retired judges had commented on the relevant issues (11 lectures, and one article in the CLJ).

In arriving at its decision, the Court also had regard to decisions in other common law jurisdictions which had considered Chartbook ([167] – [172]).  The Court noted (at [171]) that the only common law jurisdiction it had found which had expressed approval for an objective test of common intention was Hong Kong where Chartbook had been approved  in a judgment given by a certain Lord Hoffmann MPJ, with whom the other members of the Hong Kong Court of Final Appeal had agreed.

Best wishes

David