Beazer Homes Ltd v Stroude

In construing a formal written contract, negotiations, drafts and subjective intentions are inadmissible because they do not record a settled consensus and are unhelpful. The exclusion applies equally to negotiations for a separate, abortive agreement when relied on to establish the meaning, scope or implied terms of the contract before the court. Objective background must comprise the factual setting and knowledge shared by all contracting parties. Material known only to some parties cannot supply that setting. A concluded contemporaneous agreement is materially different from negotiations and drafts. The appeal was dismissed.

The appeal arose from a dispute concerning a written agreement made pursuant to section 106 of the Town and Country Planning Act 1990 and connected with a proposed development and bypass in Cambridgeshire.

Mr Stroude sought to establish an implied right of access over land for the construction of the bypass. Beazer Homes relied on negotiations and drafts concerning a separate collaboration agreement between itself and Mr Stroude. That agreement was never concluded. On an interlocutory application under CPR Part 32.1, Rimer J ruled that the evidence was inadmissible for construing the section 106 agreement. Beazer Homes appealed. The central issue was whether negotiations for the separate, abortive agreement could form part of the admissible background to the construction of the section 106 agreement.

1. Disposition. The Court of Appeal unanimously dismissed the appeal. Mummery LJ gave the leading judgment, with Munby J agreeing and adding reasons. The court did not determine the pending summary judgment application or the substantive entitlement to access.
2. Procedural point. The court accepted that Civil Procedure Rules 1998 Part 32.1 permits the court to control the evidence and to exclude evidence that would otherwise be admissible, including to save costs and delay. Ordinarily, disputes about admissibility should be resolved at the substantive hearing or trial. A separate preliminary hearing may leave the judge less well informed and cause unnecessary cost and delay. There was no good reason for the preliminary ruling in this case, but the appeal was not rejected on that procedural ground.
3. Exclusionary principle. The authorities, including Prenn v Simmonds [1971] 1 WLR 1381, Reardon Smith Line Ltd v Yngvar Hansen-Tangen [1976] 1 WLR 989 and Investors Compensation Scheme Ltd v West Bromwich Building Society [1998] 1 WLR 896, establish that negotiations and subjective intentions cannot be used to construe a written contract. The policy is pragmatic. Negotiating positions change and do not record a final consensus. Construction should therefore focus on the language agreed in the final document.
4. Separate agreement. The same reasoning applied to negotiations for the uncompleted collaboration agreement. Evidence that negotiations had occurred, without their substance, established nothing useful. Evidence of their substance would amount to evidence of subjective intentions, including intentions concerning the section 106 agreement, and was inadmissible. The fact that a contemporaneously concluded agreement might have been relevant did not make negotiations or drafts admissible.
5. Objective background and practical considerations. The admissible factual background must be known or reasonably available to all parties to the contract. Only two of the five parties to the section 106 agreement had participated in the collaboration negotiations. Those negotiations could not objectively establish the agreement’s purpose or support an implied term against the remaining parties. The suggested redaction approach was also potentially unworkable, and third-party property interests supplied an additional reason for caution.
6. Orders. Appeal dismissed. The respondent was ordered to pay the appellant’s appeal costs, assessed at £10,457. Leave to appeal to the House of Lords was refused.

• Chancery Division: Mr Justice Rimer ruled that evidence of subjective intentions and negotiations concerning the separate collaboration agreement was inadmissible for construing the section 106 agreement.
• Court of Appeal (Civil Division): The appeal was dismissed, and the ruling on admissibility was upheld.