Chartbrook Ltd v Persimmon Homes Ltd & Anor

In construing a commercial contract, the parties’ negotiations and declarations of subjective intention remain inadmissible as contractual background, subject to the limited private-dictionary principle. That principle does not extend to a word, phrase or term which the contract itself expressly defines. Defined terms must be construed from the language used, read in the context of the agreement as a whole and the admissible background.

Rectification requires convincing proof, assessed on the ordinary civil burden of proof. In a unilateral mistake case, the claimant must generally prove that the other party had actual, including blind-eye, knowledge of the mistake and that the circumstances made silence unconscionable. A fair and reasonable apportionment may be implied where a single price covers separately defined contractual elements.

Chartbrook claimed money under a development agreement under which Persimmon was to pay a price calculated under Schedule 6. The dispute concerned the meaning of the defined term “Additional Residential Payment” and, in particular, whether Chartbrook was entitled to 23.4 per cent of the amount by which residential sale prices exceeded the minimum guaranteed value, or only to the excess of 23.4 per cent of those prices over the minimum guaranteed value.

Persimmon alternatively sought rectification for common mistake or unilateral mistake, alleging that the written formula failed to reflect the parties’ agreed intention. A further issue concerned the apportionment of sale prices between flats and separately defined car parking spaces.

1. Construction. The court applied the principles in Investors Compensation Scheme Ltd v West Bromwich Building Society [1998] 1 WLR 896 and Prenn v Simmonds [1971] 1 WLR 1381. Negotiations were excluded for policy reasons, particularly the need to protect third parties dealing with commercial contracts without access to the negotiations.
2. The private-dictionary principle could not be used to construe an expressly defined contractual term. The term “Additional Residential Payment” was defined, and its ordinary contractual meaning was 23.4 per cent of the price achieved for each residential unit after deducting the minimum guaranteed residential unit value and costs and incentives. Persimmon’s construction required words which the parties had not used and produced an irrational treatment of costs and incentives.
3. Rectification. Rectification was available where parties deliberately used words but mistakenly believed that those words had a different legal meaning, consistently with Re Butlin’s Settlement Trusts [1976] Ch 251. Persimmon proved its own intention, but did not provide the convincing proof required to establish that Chartbrook shared that intention or, alternatively, knew of Persimmon’s mistake and unconscionably remained silent. The rectification counterclaim was dismissed.
4. In a unilateral mistake case, the relevant knowledge is actual knowledge, including blind-eye knowledge, as explained in Commissioner for the New Towns v Cooper (Great Britain) Ltd [1995] Ch 259 and George Wimpey UK Ltd v VIC Construction Ltd [2005] BLR 135.
5. Car parking. “Price achieved for each Residential Unit” excluded the value attributable to separately defined residential car parking spaces. Because the agreement did not prescribe the method of apportionment, a fair and reasonable apportionment was implied. Persimmon’s use of £10,000 per space was held fair and reasonable.

Judgment was therefore given on the construction issue for Chartbrook, the rectification counterclaim was dismissed, and Persimmon succeeded on the car parking issue.