Chartbrook Ltd v Persimmon Homes Ltd [2009] 1 AC 1101 (HL)

Facts

• The dispute arose from a land development agreement between Chartbrook Ltd (the landowner) and Persimmon Homes Ltd (the developer) regarding the calculation of the "additional residential price" (ARP) payable to Chartbrook under the contract.
• The contract defined the ARP as "23.4% of the price achieved for each residential unit in excess of the minimum guaranteed residential unit value (MGRUV) less the costs and incentives (C & I)."
• Chartbrook and Persimmon disagreed over the proper construction of this clause, resulting in a difference of more than £3.5 million in payment.
• Persimmon argued for an interpretation yielding a lower sum payable to Chartbrook and sought to adduce evidence of pre-contractual negotiations to support their understanding.
• Persimmon alternatively claimed rectification should the court find against its contractual interpretation, seeking to amend the agreement to reflect its understanding.
• The language of the disputed clause was found to be careless, leading to ambiguity regarding the intended allocation of payments.

Issues

1. Whether the court should adopt a literal or contextual interpretation of the disputed contract provision, particularly when the literal approach produces an uncommercial or irrational result.
2. Whether evidence of pre-contractual negotiations is admissible in interpreting contract terms.
3. Under what conditions rectification may be granted to correct a written agreement that fails to capture the parties' common intention due to mistake.

Decision

• The House of Lords held that courts are not bound by a strictly literal reading where the context reveals a clear drafting error, and courts may correct linguistic mistakes to give effect to the parties' objective intentions.
• The ruling affirmed that evidence of pre-contractual negotiations is inadmissible for the purpose of contractual interpretation, except in specific contexts such as establishing background facts or claims for rectification.
• The court clarified that rectification may be granted where there was objectively a prior common intention not reflected due to a mistake, though later case law challenged this objective standard for rectification in certain circumstances.
• Chartbrook's construction, although syntactically plausible, was rejected for lacking commercial sense; the court adopted Persimmon's interpretation based on contextual and commercial considerations.

Legal Principles

• Contractual interpretation must consider both the language used and the factual matrix, but courts will not admit evidence of pre-contractual negotiations for interpretation.
• Linguistic mistakes in contracts can be corrected judicially where context makes the error and intended meaning clear.
• The doctrine of rectification allows correction of a written document not reflecting a prior common intention arising from common mistake, with initial emphasis on an objective standard, though subsequent authority has shifted in part towards a subjective assessment.
• The exclusion of pre-contractual negotiations in interpretation is driven by the need for legal certainty, the integrity of written agreements, and practicality.
• Courts must balance commercial sense with fidelity to the express words of the contract, and should avoid re-writing bargains in hindsight absent ambiguity or mistake.

Conclusion

Chartbrook Ltd v Persimmon Homes Ltd is a leading decision affirming the contextual approach to contractual interpretation, the strict exclusion of pre-contractual negotiations for interpretation, and the limited scope for rectification. Its principles emphasize both commercial reality and the boundaries of judicial intervention, while later authorities have refined elements of the rectification doctrine and the balance between textual and contextual interpretation.