Chartbrook Ltd v Persimmon Homes Ltd
Encyclopedia
Chartbrook Ltd v Persimmon Homes Ltd [2009] UKHL 38 is an English contract law
case concerning interpretation of contracts. It creates a so called "red ink" rule, that there is no limit to verbal rearrangement that the court may deploy to give a commercial sensible meaning when construing a contract in its bargaining context. It also, importantly, reaffirmed the rule of English law, that pre-contractual negotiations were ordinarily inadmissible when construing a contract.
The High Court and Court of Appeal agreed with Chartbrook's interpretation. Persimmon Ltd appealed on the interpretation given and argued that if they failed on those grounds, the contract should be construed in light of previous negotiations, or that the court should allow for the document to be rectified, because it was clear that the intentions of the parties was different from that found. Accordingly it contended that the rule in Prenn v Simmonds that pre contractual negotiations should be ignored, was an illogical rule and should be overturned.
By way of obiter dicta, their Lordships also held that, following Prenn v Simmonds, while a theory of objective interpretation could accommodate reference to negotiations, and while prima facie negotiations were relevant background to construing a contractual document (as in BCCI v Ali) it remains inadmissible because it is usually irrelevant to determine what a reasonable person would take the language of a contract to mean. Here there was no need to depart from the rule excluding negotiations, even though it might mean that in some cases parties would be bound by a contract in terms which, upon a full investigation of the course of negotiations, a reasonable observer would not have taken them to have intended. The power to depart from the rule required previous decisions of the House to be shown unjust or contrary to public policy. While the decision of Kerr J in The Karen Oltman was disapproved on its facts, the House agreed that it may legitimately be shown that two parties could use an unconventional meaning of words with their "private dictionary".
On the question about rectification, it was noted that Joscelyne v Nissen[1970] 2 QB 86 made rectification available even where there would otherwise be no enforceable prior agreement. Following Rose v Pim document can be rectified if an objective observer would have thought the parties intentions were different from what was recorded. If a prior consensus was reached through oral exchanges, then evidence of what a party understood could be important, but if a consensus was expressed in writing, that evidence would carry little weight, though (unlike a claim regarding ordinary interpretation) would not be inadmissible. Here, if Persimmon Ltd had not succeeded in interpretation, they would have been entitled to rectification.
English contract law
English contract law is a body of law regulating contracts in England and Wales. With its roots in the lex mercatoria and the activism of the judiciary during the industrial revolution, it shares a heritage with countries across the Commonwealth , and the United States...
case concerning interpretation of contracts. It creates a so called "red ink" rule, that there is no limit to verbal rearrangement that the court may deploy to give a commercial sensible meaning when construing a contract in its bargaining context. It also, importantly, reaffirmed the rule of English law, that pre-contractual negotiations were ordinarily inadmissible when construing a contract.
Facts
Persimmon Homes Ltd claimed that a contract it had to develop Chartbrook Ltd's land should be interpreted differently, so that they would be paid more. The contract said Persimmon Ltd was entitled to an "Additional Residential Payment", which was defined to mean "23.4% of the price achieved for each Residential Unit in excess of the Minimum Guaranteed Residential Unit Value less the Costs and Incentives".The High Court and Court of Appeal agreed with Chartbrook's interpretation. Persimmon Ltd appealed on the interpretation given and argued that if they failed on those grounds, the contract should be construed in light of previous negotiations, or that the court should allow for the document to be rectified, because it was clear that the intentions of the parties was different from that found. Accordingly it contended that the rule in Prenn v Simmonds that pre contractual negotiations should be ignored, was an illogical rule and should be overturned.
Judgment
The House of Lords allowed the appeal by Persimmon Ltd, and agreed that properly construed the contract should mean they would get paid more. Interpretation according to ordinary syntax made no commercial sense. The ARP had to mean the amount by which 23.4% of the achieved price exceeded the minimum guaranteed residential unit value. It was only necessary, to achieve this interpretation, that it be clear something had gone wrong with the language used, and that one should interpret according to what a reasonable person would understand, following ICS v West Bromwich BS. There was no limit to the amount of "red ink", no limit to verbal rearrangement that the court may deploy to give a commercial sensible meaning when construing a contract in its bargaining context. Accordingly it was not necessary to resort to evidence of negotiations or rectification in this case.By way of obiter dicta, their Lordships also held that, following Prenn v Simmonds, while a theory of objective interpretation could accommodate reference to negotiations, and while prima facie negotiations were relevant background to construing a contractual document (as in BCCI v Ali) it remains inadmissible because it is usually irrelevant to determine what a reasonable person would take the language of a contract to mean. Here there was no need to depart from the rule excluding negotiations, even though it might mean that in some cases parties would be bound by a contract in terms which, upon a full investigation of the course of negotiations, a reasonable observer would not have taken them to have intended. The power to depart from the rule required previous decisions of the House to be shown unjust or contrary to public policy. While the decision of Kerr J in The Karen Oltman was disapproved on its facts, the House agreed that it may legitimately be shown that two parties could use an unconventional meaning of words with their "private dictionary".
On the question about rectification, it was noted that Joscelyne v Nissen[1970] 2 QB 86 made rectification available even where there would otherwise be no enforceable prior agreement. Following Rose v Pim document can be rectified if an objective observer would have thought the parties intentions were different from what was recorded. If a prior consensus was reached through oral exchanges, then evidence of what a party understood could be important, but if a consensus was expressed in writing, that evidence would carry little weight, though (unlike a claim regarding ordinary interpretation) would not be inadmissible. Here, if Persimmon Ltd had not succeeded in interpretation, they would have been entitled to rectification.