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Take your eye off the detail and you may find yourself held to ransom

Persimmon Homes Ltd v Hillier [2019] EWCA Civ 800 (09 May 2019)

Very often, litigators have to consider whether or not the court would be likely to amend or rectify a contract, or imply terms into it, if the document does not give effect to the parties’ intentions.

Although cases in which the court implies terms into contracts reach the courts quite often, cases in which the court rectifies, or re-writes, a contract are less common.

In the above case, which concerned the sale of a potential development site by Hillier to Persimmon, the Court of Appeal held that a disclosure letter accompanying a share purchase agreement (SPA) could be rectified because it did not give effect to the parties’ intentions.

The SPA transferred to Persimmon the share capital in two companies that held interests in four of six contiguous parcels of land, which were a future development site. The remaining two parcels were ransom land, because they provided access to the development site. The ransom land was owned by another of Hillier’s companies, the shares of which were not transferred by the SPA. The SPA contained warranties by Hillier that the companies being transferred owned the land, but did not identify the specific parcels of land that were subject to the warranties. The accompanying disclosure letter specifically disclosed that the acquired companies did not own the ransom land.  Persimmon argued that the parties’ negotiations demonstrated a common intention that it would acquire the whole development site including the ransom land. The High Court ordered rectification of the SPA and the disclosure letter, so that Hillier gave an unqualified warranty that the acquired companies owned the ransom land.

Faced with the unwelcome news that it would now face a breach of warranty claim in respect of the ownership of the ransom land, Hillier appealed. Hillier argued that there was insufficient evidence that the parties had intended that Persimmon should acquire the ransom land; and because the disclosure letter was a unilateral, stand-alone document notifying facts, it was not capable of rectification (the fact that the transferred companies did not own the ransom land being true).

The Court of Appeal found that on the evidence, the judge had been entitled to conclude that the SPA and disclosure letter did not record the terms agreed between the parties, and that the requirements for rectification had been met accordingly. The court also found that the disclosure letter was an integral part of the suite of documents designed to give effect to the parties’ intended transaction and, in circumstances where its terms failed to achieve this purpose, it was as much capable of rectification as the SPA itself. It did not matter that it was a unilateral document. Such documents could be rectified if they did not give effect to the maker’s intention. Rectifying the disclosure letter would not, as the appellants argued, re-write history but would simply give effect to the parties’ common intention that the acquired companies should be warranted as owning the Ransom Land.

Learning points:

  • Document your negotiations thoroughly. In this case, Hillier instructed KPMG to find a buyer for the land. KPMG’s proposal, information memorandum and Persimmon’s indicative offer and email exchanges between KPMG and Persimmon were all carefully scrutinised by the trial judge.
  • A disclosure letter is an integral part of the suite of documents designed to give effect to the parties’ intended transaction and is as much capable of rectification as the SPA is.

Although correct at the time of publication, the contents of this newsletter/blog are intended for general information purposes only and shall not be deemed to be, or constitute, legal advice. We cannot accept responsibility for any loss as a result of acts or omissions taken in respect of this article. Please contact us for the latest legal position.

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