• In the case of Chartbrook Ltd v Persimmon Homes Ltd [2009] AC 1101, the red ink rule regarding contract construction was established.
  • This case involved construction of terms, planning permissions and contract law.

Facts of the Case

  • C and D contracted allowing D to gain permission to construct property on C’s land.
  • Later, both parties could not agree on what the Additional Residence Payment was in the agreement entailling what D owed C.

Issues

  • Was the Additional Residence Payment £891,051 or £4,484,862?
  • Was the case admissible?
  • Did D prove its case?

Held by House of Lords

  • Appeal dismissed – courts should consider commercial context when constructing the terms of a contract.

Lord Hoffmann

Contractual interpretation

  • Cases are inadmissible when they are not pragmatically justified. D actually owed C £897,051 for the Additional Residence Payment.
  • “I do however accept that it would not be inconsistent with the English objective theory of contractual interpretation to admit evidence of previous communications between the parties as part of the background which may throw light upon what they meant by the language they used. The general rule, as I said in Bank of Credit and Commerce International SA v Ali [2002] 1 AC 251, 269, is that there are no conceptual limits to what can properly be regarded as background. Prima facie, therefore, the negotiations are potentially relevant background. They may be inadmissible simply because they are irrelevant to the question which the court has to decide, namely, what the parties would reasonably be taken to have meant by the language which they finally adopted to express their agreement. For the reasons given by Lord Wilberforce, that will usually be the case. But not always.” [33]

Baroness Hale

Common intentions

  • “If the test of the parties’ continuing common intentions is an objective one, then the court is looking to see whether there was such a prior consensus and if so what it was. Negotiations where there was no such consensus are indeed “unhelpful”. But negotiations where consensus was reached are very helpful indeed. If the language in the eventual contract does not reflect that consensus, then unless there has been a later variation of it, the formal contract should be rectified to reflect it. It makes little sense if the test for construing their prior consensus is different from the objective test for construing their eventual contract. This situation is, and should be, quite different from the situation where one party is mistaken as to its meaning and the other party knows this – the latter should not be permitted to take advantage of the former.” [100]

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