CHARTBROOK V PERSIMMON

[2009] UKHL 38, House of Lords, Lord Hope of Craighead, Lord Hoffmann, Lord Rodger of Earlsferry, Lord Walker of Gestingthorpe, Baroness Hale of Richmond, 1 July 2009

Contract – Interpretation – Drafting mistake – Correction by construction of carelessly drafted contract clause required clear mistake on the face of the document and it must be clear what correction ought to be made – Evidence of pre-contractual negotiations not allowed – Criteria for rectification

In a contract for the development of a site, a clause on the payment of compensation from the appellant developer to the respondent landowner was the subject of interpretation. The House of Lords held, allowing the appeal, that it required a strong case to persuade the court that something must have gone wrong with the language. In most cases, draftsmen of formal documents thought about what they were saying and used language with care. But this was an exceptional case in which the drafting was careless and no one noticed. Commercial sense militated in favour of the appellant’s interpretation of the contentious payment provision. The definition was unclear but the language of the concept which it defined was not chosen arbitrarily and its language helped elucidate the ambiguities in the definition. The defined concept itself connoted contingency, but Chartbrook’s construction entailed virtually no element of contingency at all. Their interpretation did not make sense because of that and because the figure arrived at was too precise (£53,438) and clearly not an estimate of market movements. Although the fact that a contract may appear to be unduly favourable to one of the parties is not a sufficient reason for supposing that it does not mean what it says, the striking feature of this case was that the interpretation argued for by Chartbrook made the structure and language of various provisions of the contract appear arbitrary and irrational, when it was possible for the concepts employed by the parties to be combined in a rational way. To correct such a mistake in the drafting by construction, two conditions must be satisfied: there must be a clear mistake on the face of the document; and it must be clear what correction ought to be made. It was important not to view this as a summary rectification. When discerning whether there was a clear mistake on the face of the document, the court must always take into account the whole document and its background and context. There was no limit to the amount of red ink or verbal rearrangement or correction which the court was allowed. All that was required was that it should be clear that something had gone wrong with the language and that it should be clear what a reasonable person would have understood the parties to have meant. The House of Lords considered two further arguments. First, their Lordships declined to change the rule on the use of evidence on pre-contractual negotiations in aid of construction. This would have required a departure from a long and consistent line of authority, the binding authority of which had frequently been acknowledged. Second, their Lordships restated the rules on rectification and held that rectification would in this case have been available, although in the event the decision on contract interpretation made the question moot.