Summary

A disclosure letter sent as part of a data package in the course of negotiations for a share purchase could be rectified if it did not give effect to the parties' intended transaction.

Facts

The first and second defendants (D1 and D2) appealed against an order for the rectification of a share purchase agreement and related disclosure letter.

D1 and D2 operated through a group of companies which owned the six parcels of land making up a development site. In October 2012 the claimant developer sought to acquire the site by entering into a share purchase agreement in respect of the shares in two of the companies in the group. One of those companies ("Developments") had a subsidiary which held options to purchase four of the parcels of land. The other two parcels (the Felbridge freeholds), which were necessary for access to the site, were owned by a subsidiary of another company in the group. The agreement contained warranties that the two companies had good title to the land, but did not identify individual parcels. A disclosure letter sent by D1 and D2 as part of a "data package" during the negotiations qualified the warranties by stating that they did not own the Felbridge freeholds. After completion of the share purchase, the claimant realised that rather than indirectly acquiring the whole site, it had merely acquired a part of it subject to a "ransom strip". It therefore sought rectification of the agreement and the disclosure letter so as to include the Felbridge freeholds. The judge found that the heads of terms agreed between the parties were contrary to the inclusion of the Felbridge freeholds in the deal. However, he held that D1 and D2's data package and communications clearly suggested that they controlled the entire development site, and that if the claimant bought the shares in Developments it would acquire control of the interests in the Felbridge freeholds. He found that it was the parties' common intention that Developments should be warranted to be the owner of those freeholds, and he ordered rectification of the agreement and the disclosure letter to give effect to that intention.

Held

Was rectification supported by the evidence? The judge had been entitled to conclude that the agreement and disclosure letter did not accurately record the terms agreed between the parties, and that the requirements for rectification had been met. Although D1 and D2 had argued that he should look at the heads of terms, rather than the preceding documents, when determining the parties' intentions, he found that they did not have contractual force and were to be considered as part of the negotiations leading to the agreement. He found that they did not accord with, and therefore had to yield to, the parties' common intention. In attacking that conclusion, D1 and D2 criticised the way he had dealt with a telephone conversation in August 2012, in which, they claimed, the parties' deal had been struck. They argued that, having failed to make findings about what was said during that conversation, the judge should have regarded the heads of terms as indirect evidence of what had been agreed. However, there was no substance in that criticism. The judge had made findings about the content of the conversation: he had accepted as accurate contemporaneous written evidence summarising the conversation and made it clear that the parties were still intending the Felbridge freeholds to be included in the deal. There was overwhelming evidence that that was what the parties had agreed, and there was nothing (other than the terms of the executed agreements and perhaps the heads of terms) to suggest that they had ever changed their minds. The judge had also been right to reject D1 and D2's argument that a sophisticated commercial concern such as the claimant would have known that if it bought Development's shares, it would acquire only those assets owned by Developments, which did not include the Felbridge freeholds. He was correct to hold that the mechanics for including those freeholds in the deal, to reflect the parties' common intention, were a matter for D1 and D2. As the controlling shareholders of all the relevant companies, it was up to them to ensure that the freeholds were owned by Developments by the time of completion (see paras 29-37 of judgment).

As a matter of law, was a disclosure letter capable of being rectified? The disclosure letter was an integral part of the suite of documents designed to give effect to the parties' intended transaction. It qualified their warranties, and its terms had been agreed between their solicitors. However, it did not give effect to their common intention that the Felbridge freeholds would be owned by Developments on the date of the agreement and would indirectly pass to the claimant upon completion. In those circumstances, there was no reason why it should not be capable of rectification. It did not matter that it was a unilateral document. Unilateral documents could be rectified if they did not give effect to the intention of the maker, Butlin's Settlement Trusts (Rectification), Re [1976] Ch. 251 and Lee v Lee [2018] EWHC 149 (Ch) applied. Rectifying the disclosure letter would not re-write history but would simply give effect to the parties' common intention that Developments should be warranted as being the owner of the Felbridge freeholds (paras 38-42).

Appeal dismissed