England and Wales High Court (Chancery Division) Decisions

IN THE HIGH COURT OF JUSTICE
BUSINESS AND PROPERTY COURT IN LEEDS
BUSINESS LIST (CH D)

		The Court House Oxford Row Leeds LS1 3BG
		24 April 2018

His Honour Judge Saffman:

Introduction

1. I am required to determine 2 preliminary issues. By order of His Honour Judge Klein of 7 December 2017 the preliminary issues requiring to be determined are first^, whether a legal charge dated 29 July 2010 by which the claimants charged their home in favour of the defendant should be rectified. Secondly, in the event that that charge does not fall to be rectified, whether it has been executed by the claimants pursuant to a misrepresentation which permits rescission of the charge. Once those preliminary issues have been resolved the court must go on to determine at a later date the question of whether the claimants are indebted to the defendant and, if so, to what extent.
2. The claimants, Andrew and Susan Watson, seek rectification of the legal charge of 29 July 2010 by which they charged their home, Lynchgate Hall, School Hill, Whiston Rotherham to the defendant, Peter Thomas Eyre to secure liabilities defined in the charge as:

"all present and future monies, obligations and liabilities owed by the (claimants) to the (defendant), whether actual or contingent and whether owed jointly or severally, as principal or surety and/or in any other capacity, including (for the avoidance of doubt) all monies due under or in connection with the Guarantee or this legal mortgage (including without limitation, those arising under clause 19.3(b)) together with all interest (including, without limitation, default interest accruing in respect of such monies and liabilities."

3. The charge defines the defendant as "the lender" for the purpose of the charge and the claimants are defined as "the borrowers". It is, as is clear from the definition of the secured liabilities, an "all monies" charge by which Lynchgate Hall secured all monies due from the claimants to the defendant.
4. The claimants contend that the charge does not reflect the common intention of the parties. They contend that the common intended purpose of the charge was to secure separate guarantees given by the first and second claimants^[1] in respect of monies lent to Worldsunny Ltd (Worldsunny), a pharmacy company owned by the claimants and which was, as at July 2010, in serious financial difficulties.
5. The claimants accordingly seek rectification of the legal charge both as to the definition of "borrower" and as to the "secured liabilities". Their assertion is that the defendant did not lend money to them and thus they are not "borrowers" but rather the borrower is Worldsunny and they further assert that the liabilities secured by the charge are not "all monies" owed by them to the defendant but simply the monies due from Worldsunny to the defendant. In fact, they assert that no monies are owed by Worldsunny to the defendant and neither are any monies owed by them as individuals to the defendant.
6. In the alternative, in the event that the application for rectification fails, by paragraph 17(b) of the Re-Amended Particulars of Claim, the claimants seek rescission of the legal charge on the basis that it was procured as a result of a misrepresentation by the defendant to the effect that he would advance £415,000 to Worldsunny and that "he failed to do so and the consideration for the (legal charge) wholly failed."
7. As regards the claim for rectification, the defendant's position is that both he and the claimants intended an "all monies" charge, the nature and effect of which was separately explained to each of the claimants by an independent solicitor. As regards the allegation of misrepresentation, the defendant's position is that at the time that this charge was executed the defendant was ready, willing and able to advance £415,000 in respect of Worldsunny and that it was circumstances beyond his control which transpired after the documents were executed that resulted in that advance not being made.
8. The claimants are represented in this case by Mr Robert Smith of counsel and the defendant by Mr Jonathan French of counsel. I am grateful to both for their helpful skeleton arguments and skilful presentation of their respective cases.

Background

9. The first claimant is a pharmacist. He operated a chain of pharmacies through the vehicle of Worldsunny in which he and the second claimant were the only shareholders. It appears that initially the company was successful and it provided the claimants with the wherewithal to make other investments. One such investment was a property at Lea Road, Gainsborough Lincolnshire (the Gainsborough Property). This property was acquired jointly with the defendant with whom the claimants were on very friendly terms. The first claimant and the defendant essentially went into business together to exploit the Gainsborough Property for profit as partners. They each put in £100,000 and the balance of the purchase price of £600,000 was advanced by Barclays Bank Plc who were secured by way of a charge on that property.
10. Suffice it to say that the partnership proved unprofitable and ultimately an LPA receiver was appointed by Barclays over the Gainsborough Property. It is the defendant's assertion that monies are due to him from the first claimant in respect of this venture because the defendant was obliged to make payments to discharge partnership debts for which he is entitled to a contribution from the first claimant. As at April 2010, the defendant's assertion is that the first claimant was indebted to him for his share of partnership debts in the sum of about £46,000. As I understand it, there is currently extant litigation in which the defendant has brought proceedings against the first claimant for an account in respect of partnership liabilities.
11. In April 2010 Worldsunny was in financial trouble. HMRC had issued a winding up petition in respect of outstanding National Insurance Contributions totalling £120,000. In addition, the claimants personally were also indebted to Royal Bank of Scotland in respect of borrowings incurred in the acquisition of other investment properties and were under pressure from the bank to reduce these personal borrowings.
12. It is not disputed by the claimants that things looked bleak and so the first claimant turned for assistance to his friend, the defendant who was a successful businessman. There was a meeting in late April 2010. The first claimant's recollection is that agreement was reached that he would sell 2 of his investment properties to the defendant namely 1 Park View, Greasborough for £115,000 and 55 Slinn Street, Sheffield for £130,000. It was agreed that the defendant would pay a deposit of £60,000 in respect of the purchase of those 2 properties^[2] and that that money would be paid to HMRC in consideration of their agreement to an 8 week adjournment of the winding up petition in order to give the first claimant, with the help of the defendant, time to raise the balance of £60,000 necessary to clear Worldsunny's liability to HMRC in its entirety. Agreement was reached that the claimants would charge Lychgate Hall to the defendant to secure this payment of £60,000. The defendant's evidence, as I understand it, not disputed by the claimants, is that it was agreed that the first claimant would be given the opportunity of repurchasing these properties for the price at which they had been sold when he had resolved his financial difficulties.
13. The defendant sought a charge to secure the deposit that he intended to pay because, not only was the deposit an unusually large one bearing in mind the combined purchase prices of these 2 properties but the deposit was not to remain with solicitors pending completion but was to be paid to HMRC and would therefore not be recoverable in the event that the claimants failed to complete. Accordingly, the charge was intended to provide the defendant the security against possible losses arising out of a failure of the claimants to complete. This charge has been referred to in the proceedings as the first charge. It is something of a misnomer because there was in fact a first charge over Lychgate Hall in favour of Barclays Bank.
14. The above was only one aspect of the agreement reached between the first claimant and the defendant with a view to resolving the first claimant's pressing financial difficulties. It was also agreed that the defendant would assist the claimant in liquidating his other investment properties in order that he could discharge his liabilities to RBS. The deal that was reached provided for the first claimant to appoint CPS Leisure Ltd, (CPS) a company owned by the defendant, to undertake management duties on behalf of the first claimant in respect of these investment properties in consideration for which CPS would be entitled to 75% of the proceeds of sale of these properties after discharge of outstanding mortgages and costs incurred in connection with the management duties undertaken by CPS. The management duties envisaged to be undertaken by CPS Leisure Ltd were:

"negotiating the deferment of any action contemplated by the charge holders^[3] and acting in the management and disposal of the properties and obtaining discharge of the charges".

15. It is the defendant evidence that in addition to this agreement whereby CPS would undertake management duties in return for 75% of the net proceeds of sale, it was agreed by the first claimant that the defendant would receive £100,000 for his assistance in selling the claimant's investment properties^[4]. It was anticipated by the defendant that he would incur disbursements and legal costs in that connection and this payment was intended to enable those to be defrayed and to provide a fee for the defendant for his assistance to the claimants. The claimants deny that any such agreement was reached.
16. There are some manuscript notes purportedly recording the outcome of the meeting between the claimants and the defendants in April 2010. It is not clear who made these notes or when they were made. Essentially they accord with what I have set out above save that there is no reference to the arrangement by which the claimants agreed to pay £100,000 to the defendant.
17. The defendant solicitor was, and is, Mr Giles Village, a partner at HLW. In fact, he also represented the first claimant. It seems clear that Mr Village appreciated that he was not in a position to act for both sides in reducing to writing the agreement that had been reached. On 28 April 2010 he caused an email to be written on his behalf to a Mr Paul Gibbon a solicitor at Keeble Hawson. It is, I think, unnecessary for me to set it out verbatim but the gist of it is to advise Mr Gibbon that Mr Village had been instructed by the defendant in connection with the purchase of Slinn Street and Park View and that the claimants will need Mr Gibbon's advice. The email gives the background to the purchases. It specifies that Worldsunny is subject to a winding up petition and that winding up may result in the claimant's "losing everything". It indicates that, on exchange of contracts, the defendant would pay a deposit of £60,000 which would be sent to HMRC to stave off the winding up petition. It also points out that that the defendant will require additional security for the £60,000 by way of a second charge over Lychgate Hall and, further, that the defendant is intending to acquire an interest in the first claimant's property portfolio by overseeing the realisation of that portfolio in return for 75% of the net proceeds of sale. It also records that the defendant believed that that the first claimant was already indebted to the defendant in the sum of £46,000. Although the email does not specify how that debt arose, it is clear that the defendant's view was that that was the amount that he had paid in relation to the Gainsborough Property and which he was entitled to recover from the first claimant under his obligation to contribute to the partnership debts.
18. On the same date, one of Mr Village's colleagues sent to Mr Gibbon draft contracts and transfers in respect of Slinn Street and Park View. It appears from a perusal of the email chain that a draft legal charge was also sent. On 30 April Mr Gibbon approved the legal charge subject to what he thought were uncontentious amendments.
19. On 30 April 2010 contracts were exchanged for Slinn Street and Park View with completion agreed for 30 June 2010 and the £60,000 deposit was paid. In addition, the legal charge was executed by the claimants in favour of the defendant over Lychgate Hall. The charge was expressed to secure:

"the sum (not exceeding £60,000) together with interest compounded annually on such sum from and including the date hereof …… and the mortgagees lawful costs, expenses and liabilities incurred in respect of the enforcement of the security created by this legal charge which may become payable on the breach by the mortgagor or their failure to complete two contracts for the sale and purchase of land at 1 Park View, Greasborough and 55 Slinn Street, Sheffield entered into today between (1) (the claimants) and (2) (the defendant)"

Mr Gibbon witnessed the claimants' signatures on that legal charge.

20. On 12 May 2010 the agreement between the first claimant and CPS was executed by which the latter undertook to carry out the management duties to which I referred in paragraph 14 above.
21. It is pertinent to point out that no documentation makes any reference at all to this £100,000 that the defendant says was agreed as an all-inclusive fee for his assistance and indeed it is not referred to in any of the emails to which I have been referred including in particular the email of 28 April 2010 from Mr Village to Mr Gibbon which purports to set out the background leading to the agreements reached between the parties which it was intended to record in to writing. I have already remarked that this agreement did not find its way into the manuscript notes dated 27 April 2010 to which I refer in paragraph 16 above. It is also right to say that the apparent agreement whereby the first claimant had an option to repurchase Slinn Street and Park View was not reflected in any of the documentation, nor of course in Mr Village's email of 28 April but the fact that the claimant had an option to purchase does not appear to be in dispute.
22. The fact that the parties had reached this agreement in April 2010 and the defendant, through CPS, was working on behalf of the claimants, did not mean that the claimant's financial problems were resolved. The fact is that even though arrangements had been made with HMRC to stave off insolvency proceedings for the time being, nevertheless Worldsunny had other pressing creditors^[5] and of course the claimants were under personal financial pressure as a result of their exposure to RBS. The first claimant's evidence is that he and the defendant remained in constant contact. It is the defendant's evidence that discussions around the idea of the defendant purchasing the company arose at this time.
23. It was the evidence of the defendant that RBS were concerned about the continuing financial stability of the claimants as individuals and of Worldsunny and that both were in "global restructuring". This term is apparently used by RBS for those of its customers who were of particular concern and were in intensive care. Indeed, it is the defendant's evidence that one of the advantages of the claimants having reached an agreement with the defendant was that the defendant's reputation was a source of comfort to the bank that ultimately the bank's exposure would be reduced if not extinguished.
24. By July 2010 Worldsunny was under threat of the appointment of an administrator by RBS and one of the company's major creditors, AAH who between them were owed approximately £415,000. On 22 July 2010 AAH had served a letter of demand on Worldsunny for £150,515.97 in which they threatened to exercise their rights to appoint an administrator under a debenture given by the company on 29 August 2008.
25. On that same day, 22 July, following discussions between the first claimant and the defendant, MMFP Ltd, a company under the control of the defendant, made an offer to purchase the business assets of the Worldsunny for £375,000. That was apparently rejected.
26. On 26 July the defendant wrote an email to the first claimant. It was clearly written in haste on a mobile phone and so is not wholly coherent. It is helpful to reproduce that email:

"My thought on my position, when I got involved you were about to loose (sic) everything and I was outstanding 45K re Gainsborough. If I agreed today still support, you will pay of (sic) the bank may be retain some involvement with pharmacy and most certainly not go bankrupt personally. So retaining your pension and the equity in your private residence. On the other hand I am now outstanding approximately 130K, and at the end this you have no way to pay me. So my proposal is the following.

By 1st Aug (AW) will sign over his half of Gainsborough as at this date all cost for (AW) stop

(PE) will retain a legal charge on (AW) private residence, until the following have completed.

(AW) repurchases Park View at 140K long stop date 31/10/11

All the proceeds from Slinn Street will be received by (PE)

(AW) operates new pharmacy for (PE) under a management contract and delivers 2 years profits as per projections.

On delivering a third year's profit (AW) will receive a 20% shareholding in the pharmacy co.

Andrew I hope this is clear, I am still not convinced Worldsunny needs to go bankrupt, I need to speak to you are urgent re tax position as soon as you can ring me.

Regards

Peter"

27. It seems clear that the intention appears to have been that the defendant, through the vehicle of one of his companies, presumably MMFP, would make a higher offer with a view to purchasing the company.
28. At paragraph 145 of his witness statement the defendant states that

"the offer to purchase Worldsunny was made on condition that Andrew and Susan would provide a guarantee and a charge over their family home to provide me with some security for the ever increasing amounts of money I was investing in their businesses. The only way to secure the increasing, but uncertain, amounts of money was to agree an all monies charge as we were still in the middle of the complex negotiations. It was not clear what amounts would eventually be spent."

29. On 28 July 2010 HMRC's winding up petition was further adjourned in light of the fact that notice of intention to appoint administrators had been served upon Worldsunny. In the meantime, it is right to record that the sales of Slinn Street and Park View which were due to have completed on 30 June had not in fact been completed. No issue appears to have been taken with this, indeed the parties agreed to a variation of the contract in respect of each property to provide for completion to take place on 30 July 2010 in respect of Park View and for the contract in respect of Slinn Street to be terminated and instead for that property to be held by the claimant on trust for the defendant with a view to it being sold and the proceeds paid to the defendant. Furthermore, agreement was reached to increase the sale price of Park View to £140,000 in order to increase the equity from which the balance debt to HMRC could be discharged.
30. On 29 July 2010 Mr Village wrote a letter to the claimants which was emailed to them that day. It is appropriate to set that letter out in its entirety since essentially it forms the foundation of the claimant's contention that the legal charge in respect of which rectification is sought did not reflect the common intention of the parties. It reads as follows:

"Dear Andrew and Sue

Your affairs and those of Worldsunny Ltd

Since the initial arrangements between yourself and Peter Eyre where Peter advanced £60,000 to you to part settle your debt to HMRC and you agreed to sell properties at Park View and Slinn Street to him and the subsequent agreement in relation to your properties where you agreed to hold these on trust for yourself and Peter but allow Peter to dispose of them and deal with the bank's indebtedness there have been many further negotiations with the bank and your other creditors which have culminated in 2 of those creditors, AAH Ltd and RBS instructing insolvency practitioners and giving notice of intention to appoint an administrator to Worldsunny Ltd.

You are well aware that the effect of the appointment of administrators would ensure that any shortfall in the sums realised by Worldsunny would be sought from you personally under your loan to the company (which I understand is £400,000) and the effects of this over time could be the loss of your other personal assets.

I am instructed that Peter Eyre is minded to advance monies to Worldsunny which would take out both RBS and AAH and monies are being transferred to me. The figure that I have been given to date is £415,000.

I have instructions that Peter Eyre will do this provided his position in relation to the sums advanced are secured and also there are variations to the agreements between you so there is some prospect on Peter seeing a return on his investment. What is required today, therefore, will be the following documents being put in place:-

1 a transfer in the shares in Worldsunny to Peter Eyre

2 a debenture granted by Worldsunny in favour of Peter Eyre

3 agreements varying the contracts of sale in relation to Slinn Street and Park View so that Parkview is acquired for the greater value of £140,000 but the Slinn Street property will be held by you and Sue on trust for Peter so that the net proceeds of sale would be paid to Peter.

4 A personal guarantee be given by yourself and Sue jointly and severally in relation to the £415,000 indebtedness.

5 A charge be granted over your home to secure the guaranteed sums which will supersede the charge entered into to secure the initial £60,000 advance to you.

6 A letter agreeing to the transfer of the NHS licence on the Brampton pharmacy in favour of MMFP (or such vehicle as Peter Eyre may determine)

7 Andrew's share in the property in Gainsborough where there is an additional sum of £50,000 due from Andrew to Peter be transferred to Peter.

8 We will continue to negotiate the lease extension on the Brampton Medical Centre pharmacy but this will not be concluded today.

Keeble Hawson have advised you and Sue in relation to these arrangements to date and I am sending them a copy of this letter. I will prepare the documents for submission to them and they must give you and Sue separate independent legal advice.

I do not want to sound dramatic but I spent most of yesterday and I know will spend the remainder of today persuading the Insolvency Practitioners appointed by RBS/AAH to hold off the appointment of themselves as administrators and I think I will only be able to do this on the basis that I am holding the £415,000 here. I have no control over that process other than to allow them to believe that we are about to discharge their appointers' indebtedness.

I look forward to hearing from you as soon as possible.

Yours sincerely,

Giles Village"

31. The first claimant's evidence is that this email came as something as a relief to him. It provided significant hope that the pressing creditors would be paid and that the company could therefore continue to trade. As far as he was concerned, he accepted that there was a requirement that he and his wife give a guarantee and execute a legal charge over their home but the letter indicated that it was to be a guarantee in respect only of the liabilities of Worldsunny and that the legal charge was simply to secure that limited guarantee.
32. Arrangements were made to see Mr Gibbon at Keeble Hawson later that day. It will be recalled that he had acted for the claimants in executing the charge of 30 April. There was clearly considerable urgency in the light of the pressure being exerted by the company's creditors and those instructed by them. It is the first claimant's evidence that the defendant was particularly anxious for these documents to be signed that day and indeed the first claimant recalls a telephone conversation that he had with the defendant whils he was at the offices of Keeble Hawson where the defendant, who was on a runway en route to Austria, was screaming down the telephone that the documents must be signed. The defendant denies that.
33. I did not hear from Mr Gibbons nor is there any witness statement from him. There is however in the court bundle handwritten notes which it is presumed were made by him and which seek to summarise, presumably preparatory to his meeting with the claimants, the effect of the legal charge and the guarantee. These notes run to 4 pages in respect of the meaning of the legal charge and 2 further pages in respect of the meaning of the guarantee.
34. One of the grounds upon which the claimants argue that it is clear that the legal charge fails to reflect the true intention of the parties in that the guarantee provided by the claimants is specifically in respect of "all monies, debts and liabilities of any nature from time to time due, owing or incurred by (Worldsunny) to (the defendant)" whereas the legal charge, ostensibly intended to secure the guarantee, purports to charge the claimants' property in respect of all monies due from the claimants to the defendant rather than just Worldsunny's liability to the defendant.
35. The handwritten notes to which I refer specifically record that the secured liabilities for the purpose of the legal charge are "all monies presently and in the future owed to the lender" whereas, when addressing the guarantee, the notes record that the guarantee is in respect of "guaranteed liabilities" (which are defined in the guarantee as monies debts and liabilities owing or incurred by Worldsunny to the defendant). The note also specifically had regard to clause 2.3 of the guarantee. The note records that the claimants indemnifies "(the defendant) against all costs et cetera incurred or suffered by (the defendants) arising out of Worldsunny's failure to discharge any of its obligations in respect of the guaranteed liabilities" .
36. Mr French suggests that it seems tolerably clear therefore that the writer of these notes recognised a distinction between the extent of the liabilities assumed under the guarantee by the claimants and those assumed by the claimants under the legal charge. He also makes the point that the recitals in legal charge specifically state that the defendant has agreed to provide (the claimants) and Worldsunny Ltd with facilities on a secured basis (my emphasis). He argues that this makes it clear that the legal charge extends not just to Worldsunny's debts but to the claimant's debts.
37. It is not disputed by the claimants that they signed the documents that had been sent across from HLW including the legal charge and that Mr Gibbon witnessed the guarantee and the charge. Having seen the claimants Mr Gibbons prepared an attendance note. It is dated 29 July 2010 and the material parts of it state as follows:

"I met with Andrew and Susan together to explain the purpose of the meeting and to explain the general nature of the security that they are being asked to provide by Peter Eyre.

I then met with Andrew on his own to go through the legal charge and personal guarantee in detail to explain all of the terms of the 2 documents.

Andrew then left the room and I met with Susan on her own to again explain the terms of the legal charge and personal guarantee in detail. I also explained to Susan exactly why I needed to provide the independent advice to her and gave her an overview of the basic rules relating to Etridge. Susan confirmed that she understood the terms of the documents and the consequences of entering into them. She also confirmed that she understands why independent advice is being given to her and understands that she does not have to enter into the security documentation.

Susan confirmed she would proceed to enter into and complete the security documentation of her own free will."

38. Contemporaneous documentation suggests that the claimants did not only see Mr Gibbons on 29 July but that they also saw one of his colleagues, Pierre Snowden. There is in the trial bundle a letter written to the claimants by Mr Snowden on 30 July 2010 referring to their meeting the previous afternoon at which Mr Snowden advised in relation to the debenture which Keeble Hawson had received from Mr Village in pursuance of numbered paragraph 2 of the letter of 29 July to which I have referred in paragraph 30 above.
39. Neither claimant seems to have any recollection of a meeting with Mr Snowden. I shall come to their recollection of the meeting with Mr Gibbon shortly.
40. On 3 August 2010 Mr Gibbon sent a client care letter to the claimants. Obviously, it post dated the work that had been undertaken by Mr Gibbon but of course that work had been undertaken urgently. The letter thanks the claimants for their instructions. Under the heading "Details of Services" it states that the services supplied were:

"Acting for both of you in connection with security being given to Peter Eyre in respect of a loan from Mr Eyre to Worldsunny Ltd and Andrew personally. The security documents consist of personal guarantees to be given by each of you and a legal mortgage to be secured on Lychgate Hall. There is also a debenture to be given to (sic) Worldsunny Ltd to Peter Eyre and this is being dealt with separately by my colleague Pierre Snowden.

We are instructed to advise you on the provisions contained in the security documentation and the legal and practical implications of executing and completing the security documentation.

We confirm that we are advising you solely in respect of the security documentation detailed above. In particular we are not in a position to advise you on any other aspects of your business affairs and your dealings with Peter Eyre and other creditors".

The letter estimates Keeble Hawson's costs at £2500 plus VAT and disbursements assuming no unexpected difficulties arise.

41. On the same day Mr Gibbon sent to HLW the executed security documentation specifically the debenture, the guarantee and indemnity signed by both claimants and the legal charge all of which had been dated 29 July 2010. It is right to say that Keeble Hawson's letter of 3 August 2010 makes no reference to the deeds of variation in relation to Park View and Slinn Street but it does not seem to be disputed that those deeds of variation were also signed by the claimants.
42. In the same letter Mr Gibbon says the following:

"I also confirm that I met in person with Susan Watson. This meeting was held in the absence of Andrew Watson.

In accordance with your requirements, I have advised her in relation to the proposed mortgage to be granted to Peter Thomas Eyre and have explained to her the legal implications of her entering into the proposed mortgage deed and personal guarantee.

I confirm that Susan Watson understands that, for your own protection, you require a letter from us confirming that we have fully explained the nature and the practical implications of her entering into the mortgage document. Furthermore she understands that the purpose of this requirement is that she should not be able to dispute that she is legally bound by the mortgage after it has been signed by her".

43. On 29 July 2010, it having been confirmed that the agreement had been signed the defendant transferred to his solicitors for £408,125.90. The money was sent from Austria and it appears that currency fluctuations were the reason that the amount actually being transferred amounted in sterling to less than £415,000.
44. On 30 July 2010 the sale in respect of Park View completed. The sum of £63,706.48 was paid out of the proceeds of sale to CPS. The claimants assert that it was paid to CPS on the defendant's instructions and the effect of such payment meant that so far as the claimants were concerned they personally no longer owed the defendant any monies whatsoever. As far as they were concerned that payment put them in a position where they could require the defendant to redeem first charge dated 30 April 2010. Mr Smith makes the point that in fact this was not the only monies received by the defendant or on his behalf. As result of an authority signed by the first claimant addressed to Rotherham Primary Care Trust they made a payment to MMFP Ltd of £34,433.60. The upshot was that in fact the defendant received, or there was received for his benefit, the sum of £98,140.08.
45. The point made by Mr French is that even on the claimant's evidence as at 29 July 2010, when these documents were executed, they were exposed to a liability to the defendant for the £60,000 secured by the first charge even if that changed the following day. As regards the monies received from Rotherham Primary Care Trust, it is not clear when these were received but the authority from the first claimant to the PCT was only sent on 29 July 2010. The point made by the defendant in his evidence was that, even if £98,140.08 was paid to him or to his order, so far as he was concerned the claimants were indebted to him for in excess of £130,000, as the email of 26 July 2 refer in paragraph 26 above makes clear.
46. It is the defendant's evidence that, the documentation now having been executed, he made an offer to the insolvency practitioners appointed by the bank and AAH of £415,000. It was rejected. His evidence was that the administrators had taken the view that the interests of their clients, the creditors, favoured the company actually going into administration and then the business being advertised to see if any offers were received to be "benchmarked" against the defendants offer. Worldsunny went into administration in fact on 2 August 2010. The first claimant says that he was never given an explanation as to why the £415,000 was not paid over the purpose of acquiring the company. The claimants assert that there was no intention to make a payment of £415,000 and this gives rise to the alternative contention that the legal charge was secured by way of a misrepresentation and falls to be rescinded on that ground.
47. It is the defendant's evidence that subsequent offers were put on his behalf to the administrators as they then were but that they were rejected. Ultimately the business of the company was purchased by a third party for £275,000 plus stock at valuation.
48. The claimants assert that since no monies were paid by the defendant for the purchase of Worldsunny that no monies are owed by that company to the defendant. There are thus no monies, debts and liabilities upon which the claimants guarantee can bite. Since they assert that the legal charge mistakenly extends beyond the liabilities covered by the guarantee, if the legal charge is rectified to reflect the common intention of the parties, then there is no extant debt secured by the legal charge. I have already observed that the defendant believes that the claimants remain indebted to him. There is in fact separate litigation intended to determine what is owed by the first claimant to the defendant in respect of the unsuccessful partnership relating to the Gainsborough Property (if anything) and, as I have made clear above, once these preliminary issues have been determined then in these proceedings the court must determine what is owed to whom.
49. Finally, in connection with background, it is right to record that in July 2012 the defendant served a statutory demand on the first claimant in the sum of £34,500 in respect of monies allegedly owed in relation to the Gainsborough Property. That statutory demand was ultimately set aside. The significance so far as the claimants are concerned is that this demand was served at a time when the defendant alleges that he had the benefit of the all monies legal charge. It is well known that statutory demands can only be made in respect of unsecured debts or where the creditor has inadequate security or waives his security. Mr Smith asserts that this is evidence that the defendant himself did not believe that he had security for this debt and that in so far as the legal charge of the 29 July 2010 gave him such security, it had done so mistakenly.

Evidence

50. There is not a great deal between the claimants and the defendants in terms of events leading up to the end of July save that the claimants vehemently deny that there was any arrangement whereby they would pay the defendant £100,000. They point out that the agreement with CPS put in place terms which would have handsomely remunerated the defendant for his efforts.
51. As regards the agreement reached in July, the claimants do not deny that it was agreed that they would provide guarantees and execute a legal charge but their unswerving position is that the agreement reached between the parties was that the guarantee would be limited to the indebtedness of Worldsunny to the defendant and the legal charge was limited to securing that specific indebtedness. Their contention is that that is essentially what the letter of 29 July evidences. The defendant construes the letter of 29 July differently and argues that he always intended for a charge on the claimant's house in respect of all monies owed by the claimants to the defendant and the documents signed reflected that, as does the letter of 29 July. He argues that this was against the background of the defendant believing that in fact the claimants personally did indeed owe him money over and above any money intended to be advanced to Worldsunny.
52. Of course, the all monies legal charge is clear on the face of it but the claimant's position is that they did not appreciate its meaning. In this connection it is right to recite their evidence of that meeting with Mr Gibbon.
53. The claimants' recollection of their meeting with Mr Gibbon was that the documentation was not discussed at all. Essentially all that happened was that Mr Gibbon placed the documents in front of the claimants and ask them to sign them and they did in the belief that the charge secured only the obligations entered into under the guarantee (which was limited to a guarantee of the liabilities of Worldsunny).
54. Inevitably the first claimant was cross-examined at length about the details of his meeting with Mr Gibbon. He conceded that his recollection of this meeting was "a bit of a blur" but as far as he recalls, he and his wife arrived at the offices of Keeble Hawson after 5 o'clock in the evening when the officers were essentially closed and, other than Mr Gibbon, all he can remember seeing was the cleaner. He remembers being taken to a conference room and being told by Mr Gibbon that he had to sign some "onerous" documents but he was not given any detail. He recollects that his meeting with Mr Gibbon lasted for no longer than 20 minutes or so.
55. His evidence was that he and indeed his wife relied upon the letter of 29 July as specifying what these documents were actually intended to achieve. At one point he recalled that Mr Gibbon saw him alone in a room and specifically recalls that he did not go through the documents in detail. At another point in his oral evidence he said that he could not remember whether Mr Gibbon saw the second claimant by herself although he thought that he did.
56. Mr Gibbon's attendance note of 29 July to which I have referred in paragraph 37 was put to him. It will be recalled that that records Mr Gibbon going through the legal charge and the guarantee "in detail to explain all of the terms of the 2 documents". The first claimant was not prepared to go so far as to say that the attendance note was "false" but he did not shrink from arguing that it was "wrong".
57. It transpires that the attendance note, and indeed the preparatory notes which it is believed were made by Mr Gibbon and to which I refer in paragraph 33 above, were disclosed in the course of this litigation by the claimants. The first claimant did not dispute that those notes about the meaning of the legal charge run to 4 pages and those of the guarantee run to a further 2 pages but the first claimant's evidence is that Mr Gibbon did not go through them at all.
58. The claimants' care letter to which I refer in paragraph 40 was put to him and in particular the fact that under the details of services Mr Gibbon states that his retainer extended to acting in connection with security been given to Peter Eyre in respect of a loan to Worldsunny and Andrew personally. He did not recall reading this care letter but simply observed from the witness box that when it makes reference to personal security, it simply did not reflect what the position actually was. He remarked that this letter would have been received very shortly after Worldsunny went into administration, when the first claimant would have had other things on his mind. He had no observations on the fact that the client care letter indicates that Keeble Hawson were charging £2500 plus VAT by way of profit costs although that is quite clearly a steep charge if all that Mr Gibbon did was to place the documentation under the first claimant's nose in a 20 minute meeting with a view to him signing it without any accompanying explanation,.
59. The second claimant was also questioned about this attendance at the solicitor's office. She addresses this in her witness statement from paragraph 8. She had been made aware by her husband that she, as well as he, needed to sign documents but she did not fully understand what it was that she had to sign save that the papers were "to do with Worldsunny and that even though Peter's name would be on the house this only meant that we would have to ask him for permission if we came to sell the house". Her evidence is that prior to attending at the solicitors she had seen the letter of 29 July because her husband had shown it to her. That is also his evidence.
60. She was clear that she did not know that she was charging the house to secure liabilities and, had she known that, she would not have signed it. Her mother had consented to a charge on the property she owned with the second claimant's father and that had resulted in the ultimate loss of their house. It was not a mistake which the second claimant intended to make. Her evidence was that she remembers checking at the solicitors that the documents "were just to do with Worldsunny". There is the obvious paradox in this evidence that in fact it is not her case that she signed a legal charge without understanding its effect. It is her case that she signed a charge which she thought was limited to securing Worldsunny's liabilities. The result is that, even on her case, she was prepared to do what her mother had done.
61. She was still very upset about having to attend at the solicitors to sign any documents at all. She recalls her unhappiness being compounded by a phone call from the defendant in which he was ranting about the document being signed quickly.
62. She was unsure whether she saw Mr Gibbon alone or not but she was sure that there had not been any mention by Mr Gibbon about securing borrowings in relation to the Gainsborough Property (i.e. personal debts). Had there been then she would not have signed. She recollects the meeting being very rushed.
63. In her oral evidence she said that she had indeed read the letter of 29 July and understood its contents. This is somewhat at variance with the evidence contained in a witness statement to the effect that she did not fully understand what it was that she had to sign. Perhaps more importantly, her oral evidence about her meeting with Mr Gibbon was significantly vague. She could not remember the name of the person she had seen. She could not recall whether she saw him alone or with her husband. She could not even recall whether the irate phone call from the defendant was taken at the solicitor's office or on the way there. She did not recall seeing Mr Pierre Snowden although his letter of 30 July to which I refer in paragraph 38 suggests that she was present when the documentation relating to Worldsunny was discussed.
64. She is clear however that there was no significant discussion about the meaning of the documents that she was signing other than that she was assured they related only to covering the liabilities of Worldsunny. Her evidence, and indeed that of her husband, was that the whole meeting with Mr Gibbon lasted no more than about 20 minutes. She has no recollection of receiving the client care letter of 3 August and thus could make no comment as to the reference in that letter to advice on Andrew's personal liabilities.
65. The claimants' evidence is that the full extent of the legal charge only became clear to them many years later, in October 2015, when it was pointed out to them by their current solicitors. When that bombshell was dropped it was a considerable shock.
66. The first claimant makes the point that at the time that this legal charge was executed there was no unresolved outstanding personal liability owed by the claimants to the defendant. Even if monies were owed to the defendant in respect of the Gainsborough Property the letter of 29 July 2010 made it clear that that liability was to be extinguished by a transfer of that property to the defendant.
67. As regards the £60,000 charged by the first charge, while technically at the date of the execution of these documents on 29 July that had not been redeemed, it was inevitable that it would be redeemed the following day on the completion of the sale of Park View. Thus, he asks rhetorically, why, in those circumstances would he and the second claimant charge their home in respect of personal liabilities?
68. Mr French took the first claimant through the letter of 29 July 2010 in some detail in support of his contention that it did not evidence a concluded agreement. He did so against the background of the fact that it is not part of the claimant's evidence that there was some meeting prior to 29 July 2010 at which matters were agreed and which the letter of 29 July merely evidences.
69. Mr French drew attention to the fact that the letter refers to the fact that Peter Eyre "is minded to advance monies to Worldsunny". That, he argues, is not consistent with an agreement having been reached that effect. The first claimant denied that the letter was, in any sense, vague or merely a statement of possible intention. It sets out precisely what figure the defendant has in mind and it sets out specifically that the defendant will advance monies provided that "the sums advanced are secured". The first claimant points out that the sums envisaged to be advanced were sums to be advanced not to the first claimant personally but to Worldsunny. He also points out that there had never been any discussion of the defendant advancing money to the claimants.
70. The defendant's evidence is that the letter of 29 July 2010 does accurately represent what he was prepared to do and that included advancing monies with a view to rescuing Worldsunny provided that personal liabilities which he believed were due from the claimant to him were secured by a charge on the claimant's home. He argues that that is essentially what the letter of 29 July says and that the documents that were ultimately executed flow naturally from that letter.
71. He points out that the fourth paragraph of that letter makes it clear that the advance intended to "take out" RBS and AAH would be made "provided (the defendant's) position in relation to the sums advanced are secured and also there are variations to the arrangements between (the claimants and the defendant)" (my emphasis).
72. Attention is drawn to the fact that as even as recently as 26 July the defendant had emailed the first claimant pointing out that he was indebted to the defendant in the sum of £130,000. I refer to this in paragraph 26 above. My attention has not been drawn to any email emanating from the first claimant challenging that although I accept that that was not a good time to raise such issues bearing in mind the efforts that were then in hand to save the company and which were reliant on the defendant's goodwill.
73. The defendant disputes that the letter of 29 July relates only to the liabilities of Worldsunny. He points out that numbered paragraph 7 relating to indebtedness arising out of the Gainsborough Property which has nothing to do with Worldsunny.
74. In short, the defendant's evidence is that the documents that were executed were intended by him to provide him with the comfort of a charge in relation to all debts which he believed were outstanding to him from the claimants – not simply a charge in respect of any monies lent to Worldsunny and that there was nothing in the letter of 29 July to say otherwise.
75. As regards the statutory demand served in October 2012, his evidence was that this was initiated by his accountant. He had no idea that service of the statutory demand was precluded if the creditor had security for the debt and he was pretty sure his accountant did not know either. Interestingly however, he could offer no explanation as to why in any event he simply did not rely on the security in the form of the charge of 29 July 2010 rather than serving a statutory demand if he believed that the first claimant was indebted to him in a sum in respect of which he had the security of a charge on property.
76. Mr Smith questioned the defendant a great length about the alleged agreement for the payment to him of £100,000. It is not directly relevant to issues relating to rectification and/or misrepresentation although inevitably questions as to whether such agreement existed would be relevant in relation to the account which will form the second stage of this litigation. I accept however that the issue relating to the £100,000 may have some relevance in terms of an assessment of the credibility of the defendant and, in particular, whether his assertion as to the common intention of the parties or, at the very least, his intentions insofar as what the executed documents were intended to achieve.
77. In relation to the allegation of misrepresentation it is the defendant's evidence that at the time that the letter of 29 July was written and the document executed he did indeed intend to make an advance of £415,000 with a view to rescuing the company. He had put his solicitors in funds and an offer was made but it was rejected. Even after the company went into administration the money was retained by the solicitors in the hope that a deal could be done. It was not actually withdrawn from HLW's account until 24 September 2010. Even as late as 13 October 2010 Mr Village was writing on his behalf to RBS reporting that the defendant had proposed to purchase the company both before and during the administration.
78. Mr Smith argues in his skeleton argument that the defendant never made an offer for £415,000. He argues that the maximum offer revealed by the documents was one of £375,000 subsequently reduced. He does not accept that the defendant ever made an offer of £415,000.

The Law

Rectification

79. Counsel for the parties are agreed as to the law in this connection. The elements to be established by a claimant in order to succeed in the claim rectification are summarised by Arden LJ in Scottish Widows Fund and Life Assurance Society v BGC International (2012) EWCA Civ 607 at paragraph 43.

"43. The requirements for rectification are set out by Peter Gibson LJ in Swainland Builders Ltd v Freehold Properties Ltd (2002) 2 EGLR 71,74, paragraph 33 and approved by Lord Hoffmann in Chartbrook Ltd v Persimmon Homes Ltd (2009) 1 AC 1101 at (48):

"The party seeking rectification must show that: (1) the parties had a common continuing intention, whether or not amounting to an agreement in respect of a particular matter in the instrument to be rectified; (2) there was an outward expression of accord; (3) the intention continued at the time of the execution of the instrument sought to be rectified; (4) by mistake, the instrument did not reflect that common intention.

44. The burden of proving that the requirements for rectification have been fulfilled lies on the party seeking rectification. It is, for obvious reasons, more difficult to discharge the onus where the instrument is detailed and has been drafted, as in this case, with the benefit of expert legal advice (see Snell's equity 3second edition paragraph 16 – 022)""

80. In Swainland Builders Peter Gibson LJ considered the burden of proof. In paragraph 34 he had this to say:

"34. (1) the standard of proof required if the court is to order rectification is the ordinary standard of the balance of probabilities but as the alleged common intention ex hypothesi contradicts the written instrument, convincing proof is required in order to counteract the cogent evidence of the parties' intention displayed by the instrument itself"

81. The 33rd edition of Snells Equity paragraph 16 – 022 makes it clear that

"Convincing proof is required to contradict the inherent probability that the written instrument truly represents the parties' intention because it is a document signed by them. Equally, certainty and ready enforceability would be hindered by constant attempts to cloud the issue by reference to pre-contractual negotiations. It is for these reasons that a person seeking rectification must be able to rely upon strong irrefragable evidence. The burden of proof is on the party seeking rectification and this burden is particularly formidable if the formal instrument is detailed and recorded with the benefit of expert legal advice."

82. In James Hay Pension Trustees Ltd and others v Kean Hird and others (2005) EWHC 1093 Collins J gave summary judgment in favour of a party defending a claim for rectification of a partnership agreement where the document sought to be rectified was detailed and lengthy and was the fruit of prolonged negotiations leading to the formal instrument. In that case at paragraph 134 Collins J also cited Denning LJ in Frederick Rose (London) Ltd v Wm H Pim Jnr & Co Ltd (1953) 2 All ER 739 at 747 – 748 as to why there has to be outward accord. Because otherwise;

"there would be no certainty at all in business transactions if a party who had entered into a firm contract could afterwards turn around and claim to have it rectified on the ground that the parties intended something different".

83. In Procter & Gamble Product Supply (UK) Ltd v Svenska ...2012 EWHC 498 the court made it clear that "the basic purpose of rectification is not to vary, modify or extend the parties'contract: it is to reform the instrument to which they have sought to record it in order to conform it with their true common intention when that instrument was made"
84. Mr Smith in his skeleton argument draws attention to Crane v Hegeman-Harris Co Inc (1939) 1 All ER 662 per Simonds J at page 664:

"In order that this court may exercise its jurisdiction to rectify a written instrument, it is not necessary to find a concluded and binding contract between the parties and decedent to the agreement which it is thought to rectify……. it is sufficient to find a common continuing intention in regard to a particular provision or aspect of the agreement. If one finds that, in regard to a particular point, the parties were in agreement up to the moment when they executed that formal instrument, and the formal instrument does not conform with that common agreement, then the court has jurisdiction to rectify, although it may be that there was, until the formal instrument was executed, no concluded and binding contract between the parties."

The point made by Mr Smith in this connection is that in the circumstances it does not matter that there was no agreement prior to the letter of the 29 July.

85. In order to justify rectification, the court must be satisfied that the common intention of the parties existed at the time with the deed was executed. That is clear from the authorities cited above. It is also made clear in terms in Tucker v Bennett (1887) 38 ChD 1 at page 16 where Lopes LJ states:

"The court must look at the intention of the parties at the time when the deed was executed, and not what would have been their intent if, when they executed it, the result of what they did had been present to their minds."

Misrepresentation

86. As with the issue of rectification, counsel appear to be agreed as to the law. Certainly, Mr Smith did not take issue with Mr French's exposition of the law contained in his skeleton argument or in his oral final submissions.
87. On the authority of Edgington v Fitzmaurice (1881 – 85) All ER Rep 856 at 860 Mr French argues that it is clear that for the claimants to succeed they must satisfy the court that, on the balance of probabilities, the defendant's statement that he would advance a sum of £415,000 as set out in the third paragraph of the letter of 29 July 2010 was made at a time when the defendant did not intend to do so or knew that he did not have the ability to put that intention into effect.

Conclusion regarding Rectification

88. In the absence of any evidence of any earlier negotiations evidencing the intention of the parties in connection with the documents executed on 29 July, the crux of the claimant's case is the contended disparity between the letter of 29 July and the documents that were ultimately signed in pursuance of it.
89. Mr Smith attaches particular weight to the wording of numbered paragraphs 4 and 5 of the letter of 29 July. Paragraph 4 requires a personal guarantee to be given by the claimants in relation to the £415,000 indebtedness (my emphasis). This is an indebtedness of Worldsunny not a personal indebtedness of the claimants. Paragraph 5 requires the execution of a charge to secure the guaranteed sums (my emphasis). In connection therefore with what the legal charge is intended to cover, Mr Smith argues that the letter makes a direct connection between the charge and the guarantee.
90. He argues that the guarantee is indeed limited to a guarantee of the company's debts. He argues that that there is no reason for the legal charge to extend further - not least because any personal liability that the claimant had to the defendant over and above any liability in respect of the Gainsborough Property would disappear on completion of the sale of Park View the following day and any liability in connection with the Gainsborough Property was specifically covered by the letter of 29 July itself to the effect that the first claimant's share in that property would be transferred to the defendant in consideration of any outstanding indebtedness being forgiven.
91. The fact that, mistakenly, the legal charge did extend to personal liabilities is a consequence which none of the parties intended. He argues that, on the contrary, the manner in which the letter of 29 July is drafted shows the common intention of the parties as to what the documentation was intended to achieve namely that the claimants would guarantee Worldsunny's liabilities and that guarantee, and that guarantee only, would be secured by a charge.
92. Mr French argues that that analysis ignores the express stipulation that the legal charge will supersede the first charge. It is clear from the use of the word "supersede" that it is intended that the second charge will have the same effect as the first charge namely that it will secure personal liabilities of the claimant.
93. Mr French also makes it clear that it is clear on the face of the letter of 29 July that it is not simply confined to issues relating to the liabilities of Worldsunny. It deals specifically for example with liabilities in respect of the Gainsborough Property by requiring a transfer of that property to the defendant because £50,000 is due from the first claimant (i.e. personally) to the defendant. He also points out that the letter specifically makes it clear that as a condition of his assistance in relation to resolving issues relating to the company there were to be variations to the arrangements between the claimants and the defendant. The penultimate paragraph of the first page of the letter wherein it is said:

"I have instructions that Peter Eyre will do this provided his position in relation to the sums advanced are secured and also there are variations to the arrangements between you…." (my emphasis)"

94. He argues that under the circumstances the claimant has simply failed to establish that there was a continuing common intention that any charge was confined to securing the guarantee in respect of the company's indebtedness.
95. In addition, of course Mr French reminds me of the formidable burden on the claimants in terms of establishing what they assert. He argues that the wording of the letter of 29 July falls well short of providing convincing proof that the charge did not reflect the common intention of the parties. He reminds me of the fact that these claimants are also confronted by the fact that these documents were executed in the presence of an independent solicitor. I refer to the observations in Snell to which I refer in paragraph 81 above to the effect that it is more difficult to discharge the onus where the instrument is detailed and has been drafted with the benefit of expert legal advice.
96. I accept of course that in this case the documents were not drafted by the solicitor instructed by the claimants but I do accept that he was instructed to advise the claimants as to their effect and that that is an analogous scenario.
97. It behoves me to consider what transpired at the meeting between the claimants and Mr Gibbon on 29 July. As I observed to Mr Smith, if Mr Gibbon failed to advise or misadvised then that would appear to be a breach of his duty. There are no proceedings against him, as perhaps one might have expected. Mr Smith says that they are statute barred but the evidence of the claimants is that they discovered the effect of the charge in October 2015, 9 months before any limitation period in respect of a claim against Keeble Hawson would have expired. I have not heard from Mr Gibbon and my function in this case does not extend to making a finding against him of negligence or otherwise. I do say however that on the evidence that I have heard in this case I am not satisfied that the claimants were not advised as to the effect of the documents. On the evidence before me, I think that it is much more likely than not that, having gone to the trouble of analysing the security documents and making notes on them, Mr Gibbon would not simply then abandon those notes at his conference with the clients and simply get them to sign the documents without any advice as to their meaning and then charge £2500 for his trouble. On top of that, in this case the solicitor specifically confirmed to Mr Village that he has fully advised the second claimant at least and there is his attendance note recording that he advised both claimants in detail.
98. As against that there is the somewhat unsatisfactory evidence of the claimants as to what transpired at that meeting with Mr Gibbon. Neither appears to have a clear recollection, as is clear from paragraphs 54 to 64 above. It seems to me to be much more likely that the claimants have convinced themselves in the 7.5 years since that meeting that they were not appraised of what it was that they were signing.
99. I do not overlook Mr Smith's contention that Mr Gibbon simply overlooked the significance and extent of the charge. That would not seem to accord with what appears to be his careful note as to its effect presumably made before his meeting with the claimants and which note was actually disclosed by the claimants. In addition, as Mr French points out, that would give rise to a position where 2 solicitors have made significant errors in relation to this transaction. The first by Mr Village in sending documents to Mr Gibbon which did not reflect the parties' intentions and secondly by Mr Gibbon in not recognising that. He asks rhetorically whether that is likely?
100. In any event, the legal charge albeit that it is a legal document, is not couched in terms which are particularly obscure particularly when it is to be read by what I assume to be a relatively sophisticated businessman, never mind by a solicitor. It specifically refers to the first claimant and the second claimant as "borrowers" and it specifically provides, in paragraph (A), that the lender has agreed to provide the "borrowers" and Worldsunny Ltd with facilities on a secured basis. It cannot therefore really be said that the effect of the charge is buried deep in an obscure document couched in impenetrable legalese.
101. In any event, even if, when signing the documents, the claimants had intended to limit their liabilities only to securing those of the company, the charge would only fall for rectification if I were satisfied that that was the defendant's intention as well. There does, after all, need to be a common continuing intention which is not reflected in the documents ultimately signed.
102. Mr Smith unsurprisingly attached significance to the fact that so far as the claimants are concerned there was no outstanding personal liability for which security would have been required. However, the defendant's clear evidence is that he believed that the claimant's remained indebted to him. Even on the basis that he was due to receive £60,000 the following day and even on the basis that arrangements had been put in place for him to receive a further £34,000 odd from the Primary Care Trust, his evidence was that he believed that he was owed more than that. There is his email to the claimant of 26 July when he specifically states that he believed that the first claimant was indebted to him in the sum of £130,000. He may be wrong about that and may even have been wrong about that at the time but it is difficult to understand why he would have referred to that figure in that email unless he believed it to be true.
103. It is also right to add almost in parenthesis that the email of 26 July makes specific reference to the defendant retaining a legal charge on Lychgate Hall which was to remain in place until Slinn Street was sold and the proceeds of sale paid to the defendant. On any view, that was not going to occur any time soon.
104. Mr Smith argues that the letter of 29 July makes no reference to an all monies charge. That is true but I do not believe that that is sufficient for the purposes of the claimant. The letter is a broad document. Inevitably it does not descend to detail, that is the function of the documents that follow it.
105. I do not overlook the issue relating to the statutory demand. I do not accept however that that is sufficient to satisfy the burden on the claimant even when aggregated with the other matters to which Mr Smith argues I should have regard. It may be difficult to understand why the defendant did not rely on the security to recover the alleged debt for which he issued a statutory demand but I accept that statutory demands are sometimes issued in error where there is security and even though the statutory demand form draws attention to the fact that they are not available to creditors with security except to the extent that the security is insufficient to cover the debt or the security is waived.
106. Nor do I overlook the point made by Mr Smith that in fact the charge of 29 July was not sent in its executed form to HLW until 3 August by which time the £63,000 odd had been paid. The point he makes is that the charge is not binding in law until registered so in effect by the time the charge could have taken effect in law the £60,000 which formed the basis for the April charge had been paid off. That ignores the fact that the charge would have taken effect in equity on its execution and that in any event, the defendant appears to have believed that other sums were due to him, as I recite in paragraph 102 above.
107. I am not satisfied, particularly bearing in mind the convincing proof required, that the claimants have established a common continuing intention that the charge would extend only to securing the company's debts. I do however make it clear for the avoidance of doubt that I fully recognise that, albeit there is a requirement for convincing proof, the claimants burden is merely to establish what they assert on the balance of probabilities. It is important for the claimants to be aware that I have not reached my conclusions on the basis that they must establish their case on anything other than the balance of probabilities.
108. Furthermore, I am not satisfied that there has been an outward expression of accord. There is no evidence of any general discussions preceding and leading to the letter of 29 July. I am not satisfied that there is any evidence of any outward expression of accord to the terms of the letter of 29 July. At most there is the claimant's evidence that the defendant harangued them to sign the documents. But that is not evidence of an outward expression of accord. Even if the defendant did harangue the claimants (and course that is denied) all it establishes is that he wanted them to attend at Keeble Hawson to sign the documents. It does not support any contention that there was an expression of accord with the claimant's understanding of the effect and extent of the legal charge.
109. Clearly since I have found that there was never any common continuing intention to limit the effect of the legal charge to securing the indebtedness of the company I need not consider the third requirement for a party seeking rectification namely that the intention continued at the time of the execution of the instrument. In my judgment there was no common intention which was capable of continuing.
110. Finally, having considered the background it seems to me that the defendant is a man who seeks to protect his position with belt and braces even when dealing with friends. It seems to me to be inherently unlikely that he would not take the opportunity of ensuring that if one charge over his friends' property is to be discharged then, if he believes he is owed money, another one should be put in its place.
111. It seems to me that in the circumstances of this case the claimants had formidable obstacles in establishing the basis for rectification and, despite the impressive efforts of Mr Smith, I am satisfied that they have not overcome them.
112. I should make it clear that I come to that view whether or not the defendant is owed £100,000 in respect of his assistance. Whether he is or not is not a matter which it is necessary for me to decide but even if he is not and his evidence in respect of it is ultimately not accepted, nevertheless there is in my view insufficient evidence in this case in favour of the claimants to justify rectification of this legal charge in the way that they seek.
113. In the light of that conclusion it becomes necessary to consider whether the legal charge is capable of precision the misrepresentation.

Conclusions regarding Misrepresentation

114. I believe that I can deal with this much more briefly. I accept that in their claim for misrepresentation the claimants are not obliged to provide the convincing proof necessary for their claim for rectification but notwithstanding that, I do not accept that the claimants have established on the balance of probabilities that the defendant had no intention of advancing monies to the company at the time when the claimants executed the documents.
115. There is clear evidence that on 22 July, through the vehicle of a shelf company MMFP he offered £375,000. There appears to be no challenge to the defendant's evidence that that was rejected.
116. Whilst I have not be referred to any letter evidencing an increased offer of £415,000, it is clear that the defendant instructed solicitors that he was prepared to offer that to the company in order that it could discharge its pressing creditors and there is no doubt that the defendant made that payment (subject to currency fluctuations) to his solicitors in order to complete that deal at £415,000 if such a deal could have been done. The defendant deals with this in his witness statement at length from paragraph 154.
117. Mr Smith was unable to shift the defendant from his evidence that he had been ready, willing and able to complete a deal at £415,000 but was unable to do so through circumstances beyond his control before the company went into administration. It will be remembered that it did so on Monday, 2 August 2010, the next working day but one after the signing of the documentation on 29 July.
118. There is independent evidence that after the company went into administration the defendant was still endeavouring to purchase the company. Indeed, there is an email from the first claimant dated 16 August in which the first claimant reports to the defendant on a meeting that the first claimant had had with the administrator. It records that the defendant had made an offer to the administrator with which they were happy in principle but they were going to advertise the business for any offers to "benchmark" against the defendant's.
119. It is a concern that I have not been referred to any correspondence evidencing an offer of £415,000 but there is other evidence to which I refer above which does clearly suggest that the defendant was intending to make the funds available to rescue the company and/or when the company ultimately went into administration, to purchase it from the administrators. Perhaps the most compelling evidence in this respect is the fact that it is indisputable that the defendant put his solicitors in funds and indeed they remained in funds until September 2010.
120. I am not satisfied therefore that the claimants have established that at the time that these documents were signed the claimant had no intention of providing the funds necessary to pay off the pressing creditors and that thus they were induced into signing the documents by reason of a misrepresentation.

Summary

121. In the light of these findings I propose to dismiss the application for rectification of the legal charge of 29 July 2010 and further to dismiss the claim for rescission of that legal charge on the basis of misrepresentation.

Final remarks

I am grateful to counsel for their very able assistance in this matter.

HHJ Saffman

Note 1   and specifically referred to as "the Guarantee" in the definition of secured liabilities which I have set out above.    [Back]

Note 2   thus considerably more than the usual 10% payable on exchange of contracts    [Back]

Note 3   RBS    [Back]

Note 4   In his oral evidence the defendant asserted that this £100,000 was only payable to the extent that the payments received by CPS failed to reach that figure. That seemed to be something of a departure from his written evidence.    [Back]

Note 5   as well as HMRC for the balance of their debt bearing in mind that its petition was adjourned to 28 July 2010 by which date obviously the balance would have to paid if a winding up order was to be avoided.    [Back]