Chartbrook Ltd v Persimmon Homes Ltd

Contractual interpretation is objective. The court asks what the agreement would convey to a reasonable person with the relevant background knowledge reasonably available to the parties. Prior negotiations and subjective declarations are generally excluded. Commercial common sense may prevail over a semantic reading that flouts business common sense, but it does not permit the court to rewrite the contract. Express definitions must be construed as part of the agreement. Narrow exceptions may arise where negotiations establish that ambiguous words were used on an agreed basis, but the evidence must be sufficiently clear and cannot be used to obtain rectification under the guise of interpretation. Rectification requires convincing proof of a mistake in recording a continuing intention, and appellate courts should respect trial findings based on witness credibility.

Chartbrook and Persimmon entered into an agreement for the development of land. The dispute concerned the meaning of the defined term Additional Residential Payment in Schedule 6. Chartbrook contended that it was entitled to 23.4% of the amount by which each unit’s price exceeded the minimum guaranteed value, after costs and incentives. Persimmon contended that it was entitled to pay the greater of 23.4% of the unit price or the minimum guaranteed value, with costs and incentives deducted.

Mr Justice Briggs accepted Chartbrook’s construction and dismissed Persimmon’s counterclaim for rectification. The appeal concerned contractual construction, the admissibility of pre-contract negotiations, rectification for common or unilateral mistake, and the extent to which the Court of Appeal could interfere with the judge’s factual and credibility findings.

1. By a majority, the appeal was dismissed. Rimer and Tuckey LJJ held that the definition of Additional Residential Payment naturally meant 23.4% of the amount remaining after deducting the Minimum Guaranteed Residential Unit Value and Costs and Incentives from the price achieved for each residential unit. Persimmon’s construction required substantial rewriting of the contractual language and produced an anomalous result by allowing Costs and Incentives to reduce Chartbrook’s share disproportionately.
2. The majority accepted that commercial common sense is relevant where a semantic analysis flouts business common sense, but it cannot justify making radical changes to clear contractual wording. The use of terms such as minimum, guaranteed and balancing did not overcome the ordinary meaning of the formula.
3. Pre-contract negotiations are generally inadmissible in construing a contract. The possible private-dictionary or agreed-basis situations identified in The Karen Oltmann remain available where ambiguous words were used on a clearly established common basis. The negotiations here did not provide sufficiently clear evidence and reliance on them would have collapsed the distinction between construction and rectification. This approach was consistent with Prenn v Simmonds [1971] 1 WLR 1381 and Investors Compensation Scheme Ltd v West Bromwich Building Society [1998] 1 WLR 896.
4. Rectification requires convincing proof of a mistake in recording the parties’ intention, of the intended terms, and of the intention continuing until execution. In common-mistake cases an outward expression of the prior accord is ordinarily required. In unilateral-mistake cases the relevant knowledge must be actual, including blind-eye knowledge. Persimmon had a powerful case, but the trial judge had not been persuaded to the necessary standard.
5. The Court of Appeal should not interfere with a trial judge’s credibility findings where the judge properly took advantage of hearing and seeing the witnesses. The judge’s acceptance of Mr Skelly’s evidence about the March 2001 meeting was a finding with which the appellate court should not interfere. Lawrence Collins LJ would have allowed the appeal on construction, but agreed that the rectification claim failed.

• High Court of Justice, Chancery Division: Mr Justice Briggs accepted Chartbrook’s construction of the Additional Residential Payment formula and dismissed Persimmon’s rectification counterclaim.
• Court of Appeal (Civil Division): Rimer and Tuckey LJJ dismissed the appeal. Lawrence Collins LJ would have allowed it on the construction issue but agreed that rectification should fail.