Chartbrook Ltd v Persimmon Homes Ltd [2009] UKHL 38; [2009] AC 1101

Chartbrook owned land which Persimmon agreed to develop. Their agreement divided the price into elements including an additional residential payment calculated by a formula. When the development was complete, the parties' readings of that formula produced markedly different sums. Chartbrook relied on the apparent grammatical structure, while Persimmon argued that the commercial arrangement revealed a drafting mistake. Persimmon also relied on pre-contract negotiations and sought rectification as an alternative. The House of Lords had to determine the proper interpretation and the extent to which those negotiations could be considered.

Could the payment formula be interpreted to correct an apparent drafting error, and were pre-contract negotiations admissible for that purpose or for rectification?

The House of Lords allowed Persimmon's appeal. Read in its commercial context, the payment formula contained an evident linguistic error, and the agreement made sufficiently clear what correction was required. The court could give effect to that objective meaning without being limited by how many words needed adjustment.

The House nevertheless maintained the general exclusion of pre-contract negotiations when interpreting a concluded contract. Such material can be relevant for distinct purposes, including rectification or establishing an agreed use of language, but it is not ordinarily used to reconstruct parties' negotiating intentions. Because interpretation resolved the dispute, the further discussion of rectification was not necessary to the outcome. Later authority must therefore be considered before treating that discussion as the governing rectification test.

Contractual interpretation may correct an obvious drafting error where both the mistake and the intended correction are clear from the admissible context. Pre-contract negotiations are generally excluded from interpretation, although they may be relevant to a distinct rectification claim or another recognised evidential purpose.

Chartbrook demonstrates the power and limits of contextual interpretation. It permits correction of clear linguistic mistakes, but does not authorise rewriting an unattractive bargain. Its rectification discussion was obiter; FSHC v GLAS later clarified the distinction between rectification based on an antecedent contract and rectification based on a continuing common intention. Students should keep interpretation, rectification and the admissibility of negotiations analytically separate, rather than assuming that any evidence of what a party hoped to achieve controls the final document.