Summary

It was appropriate to allow rectification of a Tomlin order made in a bank's action to enforce charges over certain land, because the order did not reflect the parties' common intention as to the bank's rights.

Facts

The appellant bank (L) appealed against a decision ([2012] EWHC 2264 (Ch)) that it was not entitled to rectify the terms of a compromise set out in the schedule to a Tomlin order.

The order compromised proceedings in which L sought to enforce charges over certain land. The land consisted of three areas; two had been developed and the third remained to be developed. The developer was the first respondent (C), a company owned by the second and third respondents (K), a married couple. C had borrowed some £29 million from L. It and K had assembled the overall site piecemeal. It consisted of 15 separate titles; some were held by C, while some were registered in K's names. K had given guarantees of C's borrowings with a limit of £25 million. C's debt was secured by charges in favour of L over the land that it owned, and K's guarantees were secured by charges in favour of L over the land that they owned. However, the charges over K's land secured only their own liability as sureties; they did not secure C's obligations as principal debtor. C fell into financial difficulty and L sought to enforce all the charges. Settlement negotiations were initiated on the eve of the trial and resulted in a Tomlin order. One of the terms of the schedule to the Tomlin order was that in return for the payment of £500,000 K would be released from their guarantees. Shortly after the order was made, L realised that the release of the guarantees would entail the discharge of the charges over the land registered in the names of K themselves because there would no longer be any debt due from them or other liability on their part in respect of C's borrowings. L sought rectification of the order on the basis that the parties' common intention was that it was to be entitled, in respect of C's indebtedness, to look to the securities over all the charged properties, including those registered in the names of K themselves, even after the settlement sum had been paid.

Held

The judge found that there was an objectively ascertainable intention, namely that L would retain such rights as it had. It was therefore necessary to ask how those rights were characterised. The judge characterised them in formal legalistic terms and in a particular way on the basis that there was only one legal means of achieving the solution that both parties thought was necessary. He held that L's right was a right to have a charge over K's land to secure only their liabilities as sureties; thus what L needed were fresh charges over K's land to secure C's debts directly. But it was equally valid to characterise L's existing right in commercial if to some extent legally inaccurate terms. Its right was to sell all the charged properties and apply the proceeds of sale towards the discharge of C's indebtedness. That, on the evidence, and indeed on the judge's findings, was plainly the right that both parties intended L to retain. There were different ways of achieving the agreed objective but those different ways were simply mechanics. They were all directed to the same end: to ensure as both parties agreed that all the charged properties could be sold by L and their proceeds of sale applied towards discharging C's indebtedness. As was sometimes said, equity looked to the intent rather than to the form. By concentrating on only one mechanism for achieving the agreed objective, the judge did not adequately analyse the evidence of what had been agreed. Rectification of the Tomlin order should therefore be allowed (see paras 87-89, 93, 95 of judgment).

Appeal allowed