The Cost of Errors in Corporate Documents
To err is human but how errors are best resolved in the corporate world is not always simple and straightforward, which is how one mistake ended up in the High Court costing a lot of money in legal fees.
What’s the background?
In Pathway Finance v London Hanger Lane Centre Ltd [2020] EWHC 1191, mistakes were made in security documents which were then registered at Companies House. A single mistake had been made in a facility agreement document and then repeated. The agreement was referred to in 87 accession deeds which were executed by individual companies. Those accession deeds were then registered at Companies House.
However, the original facility agreement had been dated 16 September 2011 then amended on 17 November 2016. The accession deeds referred to the security agreement dated 17 November 2016 granting first ranking floating charges over all or substantially all of the assets. But though the security agreement was also originally dated 16 September 2011 - it had never been subsequently amended.
When the error was discovered, the applicant (a treasury company) asked the High Court for a declaration that the 87 accession deeds should be construed as referring to the correct date of 16 September 2011 - or alternatively, an order for rectification.
The court’s approach
First, what did the authorities say? Notably, in Chartbrook v Persimmon Homes [2009] UKHL 38, the House of Lords held that the correction of drafting errors is not a separate branch of contract law, rather a part of the single task of interpretation in relation to which the background and context must always be taken into consideration; and there is a need for clarity as to what the words used were objectively intended to convey.
Both the parties knew of the mistake in dates and clearly intended the date in the accession deeds to be the correct date of 16 September 2011.
The court concluded, first, that as far as the interpretation of the succession deeds purely between the parties were concerned, the result of that exercise is the one the claimant wanted the court to declare.
As for the public nature of those deeds – by virtue of their registration at Companies House – the court said the approach to be taken was not a question of ‘what did the parties intend to agree?’ but ‘what does the instrument mean?’ It said the law requires careful consideration of the nature and circumstances of the instrument which will inform the decision as to what if any weigh can be given to extrinsic material known to the parties – but may not been known or readily available to those who may rely on the document in questions.
The court concluded that in the circumstances, it was right to give full weight to the extrinsic material (the security agreements) in construing the accession deeds. It therefore made an order for a declaration that the words “security agreement dated 17th November 2016” in the accession deeds be constructed as a “security agreement dated 16th September 2011”. Notably, the court said it would have granted relief by way of rectification had it not been prepared to make this declaration.
What does this mean?
Great care must always be taken in ensuring security and financial documentation is correctly dated and accurately referred to in other documentation. A mistake could prove costly to put right, both in financial terms and the time taken to reach a resolution.
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