Rectification – last resort (or, the ruthless world of property development…)

July 2018

Rating system (whole thing):
Reading time (1-10 minutes): 2
Sophistication level (1 (idiot) – 10 (expert)): 7
Entertainment value (1 (turgid) – 10 (side-splitting)): 5

Last resort – rectification (or, the ruthless world of property development…)
A recent case is a rare example of where the contract was quite clearly worded, so the courts couldn’t use their powers of interpretation to get a fair result, but managed to do it using the equitable remedy of rectification.

In this case (Persimmon Homes Ltd v Hillier [2018] EWHC 221 (Ch)) Persimmon Homes had agreed to buy a potential development site off various individuals (including Hillier). It was quite clear what overall site they had in mind. But the site was made up of six different plots of land, which were owned by various companies controlled by Hillier and his mates. The deal was done as a share deal, where Persimmon bought a company and its subsidiary. But these only owned four of the plots, whereas the other two were held by a separate company. For some reason this fact was not picked up by structuring the share sale agreement (‘SPA’) in such a way that Persimmon also bought the shares in this other company. And the SPA also didn’t describe the overall property correctly, by only referring in relevant definitions to the four plots. But all the correct facts had been picked up in the due diligence, and as a result were therefore treated as disclosed by the disclosure letter (which forms part of the overall contract). This meant that Persimmon couldn’t bring a claim for breach of the warranty in the SPA which said that the companies being sold owned all the six plots.

When Persimmon discovered the error, for some reason (opportunism?) Hillier and his mates didn’t simply agree to put things right. Instead, Persimmon were left with some missing plots, including a ransom strip which meant they couldn’t even get full access to build their houses. So they went to court.

The SPA and the disclosure letter were both quite clear and unambiguous, so the court said it had no power to interpret things any differently.

But the court was won over by Persimmon’s argument that the SPA and the disclosure letter should both be ‘rectified’ due to ‘common mistake’. It is rare to be successful in getting an order for rectification, as there is a heavy burden on the claimant to prove that both parties mistakenly believed that the contract gave effect to their common intention. However, here the court ordered that the SPA should be rectified by making clear that the missing two plots should be included in the definition of the properties. And the disclosure letter should be rectified by removing references to the two missing plots and their actual ownership. Et voila, Hillier et al were now in breach of the warranty that the companies being sold owned all the six plots. So they could get appropriate damages, being the difference between what the overall site should have been worth when they bought the shares as against the far lower sum it was worth with the two missing plots.

Tip: don’t rely on the equitable remedy of rectification to let you off making horrendous errors. On another day and with another judge, the court could easily have ruled that this was simply a legal cock-up by Persimmon, and it should have got the paperwork right- ie that it was more a matter of negligence than a mistake. Still, I bet Persimmon’s lawyers were relieved at the result here…

Case: Persimmon Homes Ltd v Hillier [2018] EWHC 221 (Ch))

update June 2019 – the court’s decision was upheld by the Court of Appeal in June 2019