Chartbrook Ltd v Persimmon Homes Ltd

Where something has clearly gone wrong with the language, the court can correct it by construction, but pre-contractual negotiations remain inadmissible.

Citation
[2009] UKHL 38, [2009] 1 AC 1101
Court
House of Lords
Year
2009
Subject
Contract Law
Topic
Terms of the contract

Facts

Chartbrook owned land in London, and Persimmon agreed to obtain planning permission and build a development of flats and commercial units on it. Persimmon would then sell the flats and pay Chartbrook a price that included an additional residential payment, defined by a formula in the contract. Read literally, the formula would have entitled Chartbrook to about £4.5 million. Persimmon argued that the formula made no commercial sense and that, properly understood, Chartbrook was entitled to about £900,000, and it sought to rely on the parties' pre-contractual negotiations to support its reading.

Legal principle

The House of Lords held that Persimmon's interpretation was correct. Lord Hoffmann said that where it is clear that something has gone wrong with the language and it is clear what a reasonable person would have understood the parties to mean, the court can correct the mistake as a matter of construction, without the need for rectification. The literal reading of the formula was arbitrary and irrational, so it could be corrected. The House declined to depart from the rule excluding evidence of pre-contractual negotiations from interpretation, although such evidence remains admissible to establish background facts known to the parties and in claims for rectification or estoppel.

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This summary is for study and revision and is not legal advice. Although our case summaries are checked for accuracy, we do not guarantee that they are free from errors or omissions. Always read the full judgment for the court's reasoning.

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