Rectification for common mistake

FHSC v Glas (Court of Appeal) [2019]

Rectification is an equitable remedy by which the court may amend the terms of a legal document which, because of a mistake, fails accurately to reflect the intention of the parties to it.


The parties had entered into a corporate financing transaction which required FHSC to provide security over a loan from a shareholder. Several years later it was discovered that the relevant security documents had either never been entered into or could not be located. Rather than produce new documentation, FHSC suggested that it accede to two existing Intercompany Receivables Security Assignments (IRSAs) which provided a mechanism for the necessary security. However, by doing so FHSC assumed additional onerous obligations which were not required under the original transaction and neither party had apparently realised this.

FHSC sought an order ‘rectifying’ the accession documentation so as to exclude the additional obligations.


At first instance, the judge granted rectification of the accession documents, on the basis that he found as a matter of fact that the parties' actual common, subjective, intention had been to execute a document that did no more than provide the missing security. He also held that this was also their common intention if the matter were assessed objectively (what a reasonable observer with knowledge of the background facts and communications between the parties would have thought their common intention at the time of contracting to be). Glas appealed.

The Court of Appeal refused the appeal. It held that whether the parties had a common intention in respect of a particular matter should depend on their subjective intentions, as evidenced by their outward expressions (Note that a different, ‘objective’, test would apply in circumstances where rectification was being sought in relation to an allegedly defective secondary contract which had been entered into pursuant to an earlier binding contract).

In doing so the Court of Appeal bent over backwards to justify why it was not following the comments of a judge sitting in an earlier House of Lords case and why it was permitted to do so in this case.

It held that if, by mistake, the parties’ common continuing intention at the time of executing the contract is not reflected in its actual terms, the court can rectify the document based on the equitable principle of good faith. The test in this case is subjective. However, the parties must not merely have had the same subjective intention, but must have communicated that intention to each other.

  • The apparent need to prove the parties’ state of mind was suggested by the court to create a significant obstacle to rectification. However, this was thought to be a positive result, since the written words of a contract should have primacy except in rare circumstances.
  • Points to Note:

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