Sale of land – Rectification – Common mistake – Company agreeing to sell lease of flat to husband of sole shareholder – Husband’s trustee in bankruptcy later disclaiming agreement – Respondent shareholder entering unilateral notice claiming interest in flat – Company and receivers seeking order to remove notice – Whether respondent entitled to rectification of sale agreement to show her as a purchaser – Whether respondent acquiring beneficial interest by reason of financial contributions – Application allowed
In April 2008, the respondent’s husband agreed to purchase a lease of a flat from the fourth applicant, a company of which the respondent was the sole shareholder and of which she and her husband were directors. The husband was made bankrupt in December 2008. His trustees in bankruptcy disclaimed his interest in the 2008 agreement. Thereafter, the first to third applicants were appointed as receivers in respect of the fourth applicant by a bank that held a legal charge, pursuant to the Law of Property Act 1925.
The respondent entered a unilateral notice on the land register, claiming to hold an interest in the flat. The applicants applied for a declaration that the respondent held no such interest and an order, under section 75 of the Land Registration Act 2002, for the unilateral notice to be removed. The respondent contended that although the 2008 agreement named only her husband as purchaser, this was because of an administrative mistake and the parties had always intended that the respondent should also be a purchaser, such that she was entitled to rectification of the agreement. She relied on a statement by her husband, correspondence with solicitors showing their understanding that they were acting for both husband and wife and the payment by the respondent of £250,000 under the 2008 agreement and a £37,500 deposit under an similar earlier agreement. In the alternative, she claimed a beneficial interest by reason of her financial contributions, which she claimed included the sums stated above plus substantial amounts on improvements.
The applicants contended that the matters that the respondent relied on could establish no more than a common intention between herself and her husband, whereas rectification required a continuing common intention between both contracting parties, demonstrated by an outward expression of accord. They also argued that the 2008 agreement, as an agreement for the acquisition by a director of a company of a substantial non-cash asset of that company, was voidable for lack of approval by a resolution of the company members, as required by section 190(1) of the Companies Act 2006.
Held: The application was allowed.
(1) The matters that the respondent relied on in support of her claim for rectification for common mistake concentrated only on her and her husband’s intention. That intention was irrelevant without any simultaneous outward expression of accord from the fourth applicant as the other party to the agreement. The respondent had treated herself and the fourth applicant as being the same person, whereas the fourth applicant was a separate legal entity from the individuals who were its officers. There was no evidence that the fourth applicant’s solicitor knew, or should have realised, that the respondent and her husband intended her to be a purchaser under the 2008 agreement. In the absence of any agreement with the fourth applicant that the respondent was to be a purchaser, the claim for rectification failed: Frederick E Rose (London) Ltd v William H Pim Junior & Co Ltd [1953] 2 QB 450 and Chartbrook Ltd v Persimmon Homes Ltd [2009] UKHL 38; [2009] 3 EGLR 119 applied. Moreover, there were no grounds for rectification for unilateral mistake where the fourth applicant had not known that the husband was entering into the agreement in the belief that both he and the respondent were to be purchasers.
(2) There was no evidence that the £250,000 paid under the 2008 agreement had come from the respondent’s funds, rather than being paid to the respondent out of the fourth applicant’s account and then by her back to the fourth applicant. Nor was there any evidence that she had paid the £37,500 under the earlier agreement as she asserted or that she had paid substantial sums for improvements to the flat. Accordingly, her claim to a beneficial interest based on her expenditure failed.
(3) An agreement that required approval in the manner prescribed by section 190(1) of the 2006 Act, and had not been so approved, would be binding only if: (i) the company was solvent at the material time; and (ii) it could be shown that all the shareholders who were entitled to attend and vote at a general meeting had applied their minds to the question of approval and had assented in some manner that a general meeting could carry into effect: Re Duomatic [1969] 2 Ch 365 and Lexi Holdings plc (in administration) v Luqman [2007] EWHC 2652 (Ch) applied. There was no evidence that the fourth applicant was solvent at the time; nor was there evidence that the respondent, as the sole shareholder of the fourth applicant, had ever applied her mind to the question of whether the 2008 agreement should be approved by a resolution passed at a general meeting. Accordingly, the 2008 agreement was voidable at the option of the fourth applicant, acting by its administrators.
Joseph Curl (instructed by DLA Piper UK LLP) appeared for the applicants; Derek Marshall (instructed by Battens Solicitors Ltd, of Weymouth) appeared for the respondent.
Sally Dobson, barrister
