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.
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.
Related cases on terms of the contract
- Arnold v Britton [2015] UKSC 36, [2015] AC 1619
- Barton v Morris [2023] UKSC 3, [2023] AC 684
- Bettini v Gye (1876) 1 QBD 183
- Braganza v BP Shipping Ltd [2015] UKSC 17, [2015] 1 WLR 1661
- Bunge Corp v Tradax Export SA [1981] 1 WLR 711
- Dick Bentley Productions Ltd v Harold Smith (Motors) Ltd [1965] 1 WLR 623
- Hongkong Fir Shipping Co Ltd v Kawasaki Kisen Kaisha Ltd [1962] 2 QB 26
- Investors Compensation Scheme Ltd v West Bromwich Building Society [1998] 1 WLR 896
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