Cherry Tree Investments Ltd v Landmain Ltd [2013] Ch 305

Facts

• The case concerned a dispute over the interpretation of a contractual term regarding the payment of an "overage" amount linked to the development and sale of properties.
• The parties disagreed on the meaning of this clause, leading to litigation.
• The context for the dispute was a business setting, with both parties engaged in a commercial transaction.
• The Court of Appeal considered the language of the contract, the overall structure of the agreement, and the factual background known to the parties at the time of contracting.

Issues

1. Whether the court should interpret the disputed contract clause according to its plain meaning in the context of the agreement as a whole and the facts known to the parties at the time.
2. Whether evidence of pre-contractual negotiations was admissible for the purpose of interpreting the contracted terms.
3. Whether business common sense and the standard of a sensible person should influence the interpretation to avoid unreasonable outcomes.

Decision

• The Court of Appeal held that contract interpretation is primarily based on the plain meaning of the contractual language, viewed in the context of the whole agreement and the factual background available to both parties at the time of execution.
• The court reaffirmed the rule excluding evidence of pre-contractual negotiations from consideration in interpreting contract terms.
• The decision emphasised the need for clear and consistent contractual drafting, with all parts interpreted in a manner consistent with the overall purpose and structure of the agreement.
• Business common sense may be considered, but should not override the clear wording of the contract or admit evidence of prior negotiations.

Legal Principles

• The meaning of contract terms is determined objectively by considering the contract as a whole and the factual background, but not evidence of pre-contractual negotiations.
• The rule against admitting pre-contractual negotiations seeks to encourage clarity and discourage protracted disputes about the parties’ intentions.
• Consistency and plain writing in contract drafting reduces the risks of future disagreement.
• Interpretation should avoid outcomes that are absurd or unreasonable, assessed from the viewpoint of a sensible person with business awareness.
• The standard approach to contractual interpretation prioritises textual analysis, balanced by recognition of the factual matrix.

Conclusion

Cherry Tree Investments Ltd v Landmain Ltd [2013] Ch 305 clarified that plain contract wording, relevant factual background, and the exclusion of pre-contractual negotiations govern business contract interpretation. The decision highlights the importance of clear drafting and confirms that courts will focus on the objective meaning of the contractual language, viewed in its business context, to reduce uncertainty and the likelihood of disputes.