In Persimmon Homes Ltd v Hillier [2019] EWCA Civ 800; [2019] PLSCS 87 the Court of Appeal was asked whether it was possible to rectify a disclosure letter relating to an agreement for the sale of shares in a housebuilding company.
After completion of the sale, the developer discovered that, although it had acquired options to purchase land in Felbridge, West Sussex, it had not acquired ownership of adjoining plots that were critical to any development because, in addition to enlarging the option land, the plots were needed to provide access to it. The missing plots belonged to another company within the group – and were not included in the transaction.
At first instance, the High Court decided that the sale included all the Felbridge land and that, when the mistake was discovered, the sellers had tried to take advantage of the fact that the plots belonged to a different group company. The judge ordered rectification of the disclosure letter, to delete a statement that the company did not own the plots in question, in order to reflect the parties’ agreement that the share sale agreement did include the plots (as well as the options to purchase).
On appeal, the sellers argued that a disclosure letter contains statements, made by a seller, confirming specific facts existing as at that date, which, if not disclosed, would give rise to a claim for breach of warranty under a sale and purchase agreement. It claimed that such letters are not susceptible to rectification and that it would be wholly improper to rectify the disclosure letter to delete a statement that was, in fact, correct. The only question that could arise as to the meaning and effect of a disclosure letter was how it would be understood by a reasonable recipient and the existence of any mistake in the letter was irrelevant.
But the Court of Appeal ruled that the fact that a disclosure letter is a unilateral document was not a bar to rectification. Unilateral documents can be rectified if they do not give effect to the intention of the maker: Re Butlin’s Settlement Trust [1976] Ch 251 (a settlement) and Lee v Lee [2018] EWHC 149 (Ch) (a notice of severance of a joint tenancy).
The disclosure letter was prepared and signed, together with the share sale agreement, in order to give effect to the transaction intended by the parties. It was defined in the agreement and its contents qualified the warranties given by the sellers. It was an integral part of the suite of documents – and, if it did not give effect to the terms that had been agreed, the court could see no reason why the letter should not be capable of rectification.
The disclosure letter did not give effect to the intention of the parties – and rectification of the disclosure letter did not re-write history. It gave effect to the parties’ common intention that the sellers should warrant that the company owned the plots. The court could have rectified the share sale agreement, had it contained the statement that required rectification, and there was no basis for treating the disclosure letter differently.
Allyson Colby, property law consultant
